In a move to create more competition among lending institutions in Australia and to provide disgruntled bank customers to switch home loans without penalty, the Federal Treasurer has announced plans to ban mortgage exit fees which has been largely blamed for dampening competition by making it prohibitively expensive for mortgage holders to switch to cheaper loans.
The new ruling is to take effect from 1 July 2011. This new banking competition package also includes a plan to give the Australian Competition and Consumer Commission greater powers to stamp out anti-compeititive behaviour by the big banks such as price signalling.
In a bid to help the smaller rivals of the big banks to 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 and secure 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 anticipated 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”. 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.
- Commonwealth Bank $700 in the first four years.
- Westpac $700 in first fouryears.
- ANZ Nil (was $700 in first fouryears but scrapped last month).
- NAB Nil (was $900 in first fouryears until this month).
- CitiBank First year $1500, secondyear $1200, third year $1000.
- AMP $1000 in first fouryears.
- ING Home Loans First year $1500, second year $1050, third year $700, fourth year $350.
- Suncorp $1400 to $800 in first fouryears.
- St George $1000 in first three years.
- RAMS 1% of original loan amount in first three years.
- Bankwest Nil.