Exit fees banned: draft regulations

Treasury has released exposure draft regulations which set out the proposed amendment to the National Credit Code to ban exit fees on new home loans from 1 July 2011 as part of the Competitive and Sustainable Banking System Package.

The draft National Consumer Credit Protection Amendment Regulations 2011 prohibit a fee or charge payable on or in relation to the termination of a home loan provided for in a credit contract for a home loan entered into on or after 1 July 2011, except if the fee or charge is a break fee for a fixed loan or a discharge fee.

What is a home loan?
A credit contract is for a home loan if the loan is secured over residential property or is provided wholly or predominantly to either purchase, renovate or improve residential property or refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property.

What is a break fee?
Break fee means a fee or charge that relates only to the early termination of a credit contract for a fixed loan and is payable as a result of a change in the cost of funds to the credit provider.

A fixed loan means a credit contract under which, at the time of early termination of the credit contract, the annual percentage rate is fixed for the whole or part of the amount due under the credit contract.

What is a discharge fee?
Discharge fee means a fee or charge that only reimburses the credit provider for the reasonable administrative cost of terminating the credit contract.

A cost is a reasonable administrative cost only if it does not exceed a reasonable estimate of the average reasonable administrative cost to the credit provider of terminating that class of credit contract.

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