Industry pundits continue to voice their concern over the federal government’s proposed exit fee ban.
Last week, the government proposed a blanket ban on any fee payable at the end of a loan contract other than fixed rate break costs and discharge administration fees.
Gadens Lawyers partner Jon Denovan said when exit fees were first introduced back in 1996 they increased competition and reduced interest rates.
However, he said the proposed “misguided and ill-informed initiative” designed to help consumers would ultimately undo all the good work that was done.
“Lending is uneconomic if early repayment occurs without exit fees. Prepayment risk is too great for smaller lenders to take. Big players can savage small lenders’ books (and significantly disadvantage consumers) by offering low rates to gain market share and then increase rates once the competition has been crippled,” he said.
Mr Denovan’s comments were largely echoed by Mortgage Choice chief Michael Russell who argued any ban on exit fees would have “catastrophic consequences on market competition”.
Speaking at the Mortgage Choice interim financial results conference yesterday, Mr Russell said if the government’s legislation is passed, smaller lenders will be forced to introduce a refundable establishment fee in order to remain competitive.
“They will more than likely bleed this fee back to the client over a three to four year period, essentially creating a pseudo exit fee,” he said.
Mr Russell said the government was wrong in assuming that a $700 exit fee was a massive deterrent to customers’ refinancing their mortgage.
“The 2010 Mortgage Choice survey that addressed our clients that had refinanced over a six month period found that just on 50 per cent paid an exit fee, with the majority of them paying less than $1,000.”
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