On 23 March 2011 the National Consumer Credit Protection
Regulations were amended to include a ban on exit fees.
The new Regulation 79A provides that a credit fee or charge is
it is provided for in a credit contract entered into on or
after 1 July 2011; and
it is to be paid on or in relation to the termination of the
credit contract; and
any of the amount of credit provided under the credit contract
is secured over residential property (including residential
The ban is not limited to deferred establishment fees but
extends to any other type of fee payable on loan termination.
The prohibition does not apply to the following exit fees:
a break fee that relates to early repayment of a fixed rate
component of the loan;
a discharge fee which reimburses the credit provider for the
reasonable administrative costs of terminating the credit
exit fees in a credit contract that is not secured by
exit fees contained in a credit contract secured by residential
property that is not regulated by the National Credit Code;
exit fees such as deferred establishment fees, early repayment
fees, and LMI recoupment fees contained in credit contracts entered
prior to 1 July 2011.
The ban on exit fees has been widely opposed by industry bodies.
There is potential for some exemptions to be made by ASIC class
order. It would appear that a class order is appropriate for
certain fees payable at the end of a credit contract, particularly
relating to special types of loans.
Although some industry lobbying may continue, it seems unlikely
that the government will retreat from its stated position despite
almost unanimous opposition to the initiative. The ban creates
particular problems for smaller lenders. Industry bodies maintain
that in the end the consumer is the loser.
As Gadens Lawyers has noted before, if Telcos were banned from
charging an exit fee, few people would have a mobile phone. Perhaps
we will see fewer people having home loans, especially those who
struggle to meet the lending criteria of the big lenders.
Lenders should contact Gadens Lawyers now to arrange for
amendment to their credit contracts to remove any type of fee which
is payable on discharge, except for break fees or discharge fees,
and to discuss other appropriate amendments to credit
In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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