ASIC to use extended powers to address unfair fees

The Australian Securities and Investments Commission (ASIC) will from July 1 have the power to take action against banks for ‘unconscionable’ fees, including unfair mortgage exit fees.

Under the new Australian Consumer Law, ASIC is able to ban any unfair term in a standard consumer contract, while the new National Consumer Credit Protection Act has extended ASIC’s powers to take action on any fee it considers to be unconscionable. Consumers also have the right to challenge unfair or unconscionable early exit fees.

In terms of mortgage early exit fees, it is intended that the new powers will address excessive early exit fees that may deter consumers from switching to another mortgage, stifling competition and unfairly disadvantaging consumers.

Should the court find that a term or fee is unfair, it will be declared completely void and ASIC will be able to seek refunds on behalf of consumers.

In a joint statement, the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, and Deputy Prime Minister Wayne Swan said ASIC would most likely take action against banks that try to profit from exit fees or establishment fees, rather than using them to recover a fair level of costs.

ASIC has released a consultation paper on how its powers will be implemented in relation to mortgage early exit fees, which includes proposals about ASIC’s expectations for compliance in setting up the price of and explaining mortgage early exit fees.

The Australian Bankers’ Association (ABA) chief executive, Steven Münchenberg, said Australia has low entry fees for mortgages compared to countries like the US and UK, adding there is plenty of evidence that consumers are switching mortgages.

“Around 30 per cent of owner occupied home loans are refinanced each year,” he said.

Münchenberg asserted that banks achieve low entry costs by deferring some of the costs of establishing a mortgage and only charging those customers that change their mortgages in the first few years.

“Keeping up-front mortgage fees lower benefits all customers and supports customer switching. The effect of deferring these up-front fees, for example legal service fees, is that it reduces the cost to the customer of setting up a new loan at a time when they are incurring many other costs,” he said.

The ABA has called on all lenders to be involved in the consultation process, and Münchenberg said banks would be providing ASIC as much information as they need to demonstrate that mortgage early exit fees are appropriate and justifiable.

Referring to an ASIC review of mortgage entry and exit fees in 2008, he pointed the finger at non-authorised deposit taking institutions as those that typically charge higher fees than banks.