ASIC to review exit fee ban exemption requests
The Australian Securities and Investments Commission will start meeting lenders and their representatives next week to review applications for class orders that will be exempted under the new ban on mortgage exit fees.Gadens Lawyers' partner, Jon Denovan, says he expects ASIC to permit a few types of exit fees.Denovan said: "A borrower might have taken out a shared equity mortgage that pays the lender half the capital gain when the loan is paid. Under the law that is an exit fee. We would expect to see an exemption for that type of arrangement."An amendment to the National Consumer Credit Protection Regulations was passed on March 23 banning exit fees on all home loans sold after July 1 this year. The ban applies to fees payable on the termination of a loan.The ban does not cover break fees for early repayment of fixed rate loans, or discharge fees that reimburse the lender for the reasonable administrative costs of terminating a loan contract.The ban doesn't apply to loans that are not secured by residential property. Exit fees contained in credit contracts entered into before July 1, 2011, will still apply.Denovan asked: "What if the lender has offered to waive the cost of lender's mortgage insurance as long as the loan is held for a certain period? The borrower then pays out the loan before that period elapses. If the lender has paid the LMI for the borrower it is appropriate that it can recover its costs."We think ASIC will allow lenders to charge an exit fee if a borrower pays out the loan before a honeymoon interest-rate period ends."The Australian Financial Review reported yesterday that small lenders were preparing to pitch for exemptions, arguing that the ban will hurt their competitive position. This view was considered by the Government and rejected. It is not likely to get anywhere with the regulator.