Two and half years after Treasurer Wayne Swan promised to make it easier to switch home loans, it is about to become cheaper.
His much-vaunted "bank-switching package" unveiled in February 2008 amounted to little more than a website, a "hotline" which turned out to be the Securities Commission switchboard, and a requirement for banks to give their customers a list of their direct debits to take to their new lender.
But from Thursday the Securities Commission will actually be given teeth declare void so-called "unfair" or "unconscionable" exit fees that don't relate to the costs banks actually incur in closing accounts.
Financial Services Minister Chris Bowen told the Herald lenders would still be able to recover costs from lenders who left early, but would no longer be able to "gouge".
A new consumer credit law in place from Thursday will give the Commission the power to strike out "unconscionable" fees... and a new national consumer law will give it power to strike out "unfair" ones.
And some of them are high. Rate-watching service InfoChoice says a "Smart Saver" variable loan offered by Homeloans Ltd would cost $5178 to exit if $300,000 were borrowed for 25 years and the loan closed within three years.
The sum is made up of $678 exit administration fee and a $4500 so-called deferred establishment fee.
Others are much lower, the Credit Union of Australia charging $350, The ANZ charging $700 and Westpac $1150.
But the bad news is customers already on subject to those high exit fees will continue to face them.
The new powers will apply only to loans entered into after July 1.
Minister Bowen says he considered legislating to give the Commission the power to amend existing contracts but was advised it would be unconstitutional.
"It would have removed existing rights and almost certainly invited a constitutional challenge with a reasonable likelihood of success," he told Herald.
"But I do think we will see behavioural change affecting existing contracts. I wouldn't overstate it, but I think the increased attention and the the likelihood of public opprobrium will improve the way lenders treat the customers they have," he said.
The National Australia Bank which stands to benefit from the change offering the lowest variable rate of the big four was enthusiastic.
"If these new laws give Australians more power to walk down the road and find a better deal that’s a great thing," said chief executive Cameron Clyne. "It'll be good for competition and good for lenders like us who offer the most competitive rates."
The Bankers Association was more circumspect arguing that some of the fees charged on exit benefited borrowers.
"Some fees reflect the real costs of closing accounts and others are deferred establishment fees which can actually help borrowers who would otherwise have to pay upfront," said chief executive Steven Munchenberg.
"One way or another banks have to charge for setting up accounts."
Jenny Mack, chairperson of the consumer group Choice said the market wouldn't work until customers could cheaply switch.
"As rates went down consumer advice centres and the Financial Ombudsman were flooded with consumers trying to get out of mortgages."
"We think it's great that with new laws in place this is the first area ASIC and the government will target," she said.
Published in today's SMH and Age
What it costs to get out
ANZ Simplicity Plus $700
Credit Union of Australia $350
Commonwealth Bank Economiser $1050
Homeloans Smart Saver $5178
NAB Choice Package $1800
RAMS Basic $3295
Resi Smart Pro $2228
St George Basic $1500
Westpac First Option $1150
Assumes 25 year $300,000 variable mortgage discharged before 3 years. Includes exit fees, deferred establishment fees and early termination fees.
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