Mortgage exit fees banned

Disgruntled bank customers will be able to switch home loans with impunity from the middle of next year under an overhaul of the banking sector designed to break the dominance of the big banks.

Treasurer Wayne Swan will announce today plans to ban mortgage exit fees – blamed for dampening competition by making it prohibitively expensive for customers to switch to cheaper loans – from July 1 next year.

The Sunday Age believes the much-anticipated banking competition package also includes a plan to give the Australian Competition and Consumer Commission sharper teeth to stamp out anti-competitive behaviour by the big banks.
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And in a bid to help the banks’ smaller rivals reclaim a larger share of the lending market, the government is launching a ”government-protected deposits” symbol – designed to provide comfort to customers that their money is just as safe with credit unions and building societies as it is with the big banks.

The symbol is part of a broader plan to make smaller lenders a ”fifth pillar”, in addition to the big four banks. The measures are sure to anger the banking sector, which argues that banning mortgage exit fees would merely force smaller lenders to raise other charges to offset the lost revenue.

But Mr Swan said he wanted to empower customers to ”get a better deal and help smaller lenders put more competitive pressure on the big banks to do the right thing by their customers”.

”Competition is the best way to keep interest rates lower over time, and helping Australians walk down the road and get a better deal if their existing lender isn’t looking after them is crucial to that,” Mr Swan said.

Under the changes, the ACCC will get new powers to crack down on so-called price signalling, an anti-competitive behaviour where the banks publicly announce their intentions to lift interest rates.

ACCC chairman Graeme Samuel said the practice, which has been outlawed in several countries, removed a level of competition from the lending sector by giving rivals a ”degree of comfort” to also lift their interest rates above any Reserve Bank rate without suffering a competitive disadvantage. ”It gives them a comfort level that avoids the sort of competitive tensions that we like to see take place,” he said.

Consumer groups and the Greens have backed strongly the idea of banning mortgage exit fees in Australia, where they are the highest in the world.

A Fujitsu Consulting report found that Australian lenders had charges for exiting mortgages early, with an average fee of $1500, compared with $400 in Britain and $550 in the US.

The Australian Securities and Investments Commission has already announced a crackdown on excessive fees. But the measure to ban them will be contested by the big banks.

Australian Bankers Association chief executive Steven Munchenberg said most mortgages exit fees reflected genuine costs and banning them would hurt smaller lenders most. ”It is much harder for smaller lenders to distribute costs across their business, unlike the major banks,” Mr Munchenberg said.

He was also concerned about giving the ACCC extra powers on price signalling.

He said lawyers of big banks would be warning executives not to comment about funding for fear of attracting negative headlines and accusations of anti-competitive behaviour.

The opposition also remains opposed to banning mortgage exit fees, although shadow treasurer Joe Hockey favours stronger powers for the ACCC.

Story by Josh Gordon, smh.com.au

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