Abolishing exit fees will be a win for the banks

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VIC3000
Member
@vic3000
Join Date: 2010
Post Count: 6
November 8, 2010 - 12:45 am
The talk of removing exit fees is worrying me a little. If I am wrong someone please explain.
I was reading an article in the business section today about exit fees. It says the exit fees are $700 for ANZ and CBA, and $900 for Westpac and NAB. At the end of the article is says non bank lenders are as high as $7500 for a $250,000 loan. This is more than 10 times CBA or ANZ. Some of the cheapest non bank lenders have fees of 1 or 2 % of the original loan amount.
Many industry experts would say the only way non banks can compete with the banks on interest rate, is by having a heavy exit fee so the client does not leave. Or if they do leave the money is made on the fee.
Is abolishing exit fees worse for non banks than banks?
If so is this just a win for the banks?
Please let me know your thoughts.
duckster
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@duckster
Join Date: 2004
Post Count: 1,674
November 8, 2010 - 5:35 am
You need to know if the other $7000 fee was based on a fixed term bank loan as this will push the exit fees up.
Some people have mentioned that the no exit fee needs to be across all banks and non banks.
Paul Dobson
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@pauldobson
Join Date: 2003
Post Count: 1,196
November 8, 2010 - 7:14 am
Actually the Polies are just catching up with what has been a talking point in the Lending world ever since the NCCP Act came in, i.e. Exit Fees have to reflect the real administrative cost of closing a loan and should not include fees for lost business opportunity. Even ASIC's Regulatory Guides have been indicating this.
Obviously there is an administrative cost for closing a home loan/mortgage and if the polies think that banning exit fees will stop this administrative cost from being passed on, they're dreaming
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
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An alternative way to finance your home.
VIC3000
Member
@vic3000
Join Date: 2010
Post Count: 6
November 8, 2010 - 3:02 pm
Sadly I am talking about variable rate loans. Here are some examples.
Examples – Source. Infochoice.com.au
Deferred Establishment Fees on variable rate loans
BANKS

ANZ Exit Fee –    4 years      $700
CBA Exit Fee –   4 years      $700
NAB Exit Fee –   4 years      $900
Wpac Exit Fee – 4 years      $900
SOME NON BANKS

Carrington National Exit Fee –      5 years                  0.6% or $1800 (the higher)
Homestar Exit Fee –                       5 years                   Yr 1 – 1.0% Yr 2 – 0.8% Yr 3 – 0.6% etc (on original loan)
MyRate Exit Fee –                            5 years                   Same as home start
Rate Busters Exit Fee –                 5 years                   Up to 2% of original loan
So the question is. Who will suffer from abolishment of exit fees?
In the case exiting a non bank, a 500k loan could mean 1. $3000 2. $5000 3. $5000 4. $10,000. Plus these lenders all have higher set up costs.
I’m sure the 4 banks can cope with 250M less fees p/a between them. The non banks cannot afford this.
Banks win. Competition loses. Non Banks Loss.
We need real compeition. Otherwise customers have nowhere better to go!
The Ranger and her MonkeyBoy need to support competition. Not abolish competition then remove exit fees from the last lenders standing.
Clawback

Currently if you take a loan (with a major bank) with a broker and repay it in a short period of time. You pay the $700 – $900 fee and the broker repays his commission to the bank (claw back).
Many non-bank lenders have no claw back. The claw back is charged to the client (hidden in their higher deferred establishment fees).
No exit fees means Brokers will get non bank clawback (some will have to stat charging fees). It will also force some non banks to increase their rates.
There is a far better option and I think it might be in the wind…