Overturn ban on mortgage exit fees, Senate banking inquiry tells Wayne Swan

WAYNE Swan's key banking reform has been rejected by a Senate committee, which says the government should reconsider its decision to ban exit fees on new mortgages.

WAYNE Swan's key banking reform has been rejected by a Senate committee, which says the Gillard government should reconsider its decision to ban exit fees on new mortgages.

The Senate economics committee inquiry into competition in the banking sector said the ban could lead to higher upfront fees and reduce competition.

“The committee recommends that the government reconsider its decision to ban exit fees, before the amended regulations come into effect, with a view to allowing enough time for the effectiveness of the existing ban on unfair and unconscionable exit fees ... to be assessed,” the opposition-dominated committee said in a report released today.

“If it proceeds with the ban, it should only apply to authorised deposit-taking institutions.”

The exit fee ban has been enacted by regulation and is due to take effect from July 1 this year.

Overturning the measure would require the Coalition to successfully move a disallowance motion in either the House of Representatives or the Senate.

A minority report by government senators expressed surprise at the committee's exit fee finding.

“The government senators cannot support the Coalition's majority report recommendation to keep exit fees in place,” it said.

“Exit fees for new customers only reinforce the barrier to switching, and weaken the power of customers.”

Mr Swan announced a ban on home loan exit fees in December last year as part of a package of consumer-oriented banking reforms.

The Australian Bankers' Association immediately challenged the move, saying it would lead to higher establishment fees or higher interest rates.

But the National Australia Bank and the ANZ pre-empted the change, dumping loan exit fees voluntarily.

The inquiry, which was sparked by public outcry over interest rate rises beyond official Reserve Bank movements, found that fees were important “in underpinning the business models of non-bank lenders”.

“An outright ban will reduce competition from this sector,” the majority report noted.

“The committee believe that banning exit fees may lead to higher upfront fees, including for borrowers who never incur exit fees. It is notable that the only financial intermediaries that openly welcomed the abolition of exit fees were the major banks.”

The committee recommends that rather than move to an “immediate ban”, the government should allow new consumer protection provisions a chance to work.

Treasurer Wayne Swan said it was disappointing the Coalition believed families should be locked into uncompetitive mortgages.

“The Liberals need to stop standing up for the big banks and start standing up for Australian families,” Mr Swan said.

Mr Swan said Coalition MPs also supported over-the-odds rate rises, with the majority report saying it was “understandable that banks will seek to increase their lending rates by more than the official cash rate increases” to cover higher funding costs.