As interest rates drop and fixed rate borrowers review their options, disputes over break (or early termination) fees will increase.
The Ombudsman- Banking and Finance has set out his approach to fixed rate loan break fee disputes in Bulletin 60.
When a dispute arises the Financial Ombudsman Service looks at:
- whether the fee has been properly disclosed to the customer;
- whether the fee has been charged in compliance with the loan contract;
- whether the fee has been properly calculated;
- if the loan is Consumer Credit Code regulated, whether the fee exceeds a reasonable estimate of the lender's loss from early termination.
The article discusses these issues in detail and is worth reading to look at the information the Ombudsman requests in order to make a decision.
Apart from a borrower complaining to the Ombudsman, section 72(1)(c) of the Consumer Credit Code allows a Court to review an unconscionable early termination fee under a consumer credit contract.
In April 2008 the Government released the Australian Securities and Investments Commission’s review of mortgage entry and exit fees (pdf).
Recently the Victorian Consumer Action Law Centre announced that it had initiated a test case legal action against RHG Mortgage Corporation (formerly RAMS Mortgage Corporation) on behalf of a borrower. The borrower was faced with an early termination fee of over $12,000.