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ASIC outlines exit fee conduct

Lenders' exit fees will face tougher scrutiny, following the release of ASIC's regulatory guidelines.

The corporate regulator released the guidance for mortgage lenders following an extensive consultation process after the 1 July 2010 start date for the new legislation.

Within the regulatory guide, Early termination fees for residential loans: unconscionable fees and unfair contract terms, ASIC spells out what costs and types of loss can be included in exit fees; the types of loss that should not be recovered through exit fees and the limited circumstances in which a lender may vary exit fees during the life of a mortgage.

ASIC chairman Tony D'Aloisio said the guidance would ensure that lenders are clear on ASIC's expectations of their conduct.

'The law limits these fees to the recovery of a lender's loss caused by the early termination. Lenders cannot use exit fees to discourage a borrower from switching their loan or to punish them for doing so," he said.

Mr D'Aloisio said he anticipated that - in light of the guidance published today - lenders would review their practices and their fees to ensure they comply with the law.

Mr D'Aloisio also said that ASIC's initial focus would be on the highest fees in the market as they create the biggest barriers to switching.

"Generally, the longer the consumer has had the loan, the smaller the exit fee should be."

In addition, Mr D'Aloisio said the law will prevent double-dipping.

"Lenders that charge establishment fees must ensure that they don't charge consumers for the same costs a second time through an early termination fee."

Thursday, 11 November 2010
Broker News