Canberra Times

22-Feb-2011
Page: 1
General News
By: David McLennan
Market: Canberra
Circulation: 32116
Type: Capital City Daily
Size: 180.93 sq.cms
Frequency: MTWTFS-

Treasury predicted sting in

the tail on bank exit fees ban
By David McLennan
Government plans to ban bank exit
fees could actually make custom-
ers worse off and push up the cost
of home loans, Treasury docu-
ments reveal.
The documents, prepared last
year but published yesterday, show
Treasury warned of a "range of
unintended consequences from
the Government's action that
could outweigh the benefit of the
ban". Treasurer Wayne Swan an-
nounced in December the Govern-
ment would ban exit fees paid by
borrowers who leave their bank
relatively early in the period of the
loan as one of several measures it
said would give consumers more
power.
But Treasury said banks would
have to find other ways of covering
costs, including possibly increasing
interest rates or other fees.
"By international standards,
Australia has relatively high exit fees
but relatively low establishment and
ongoing fees. The key difference
being that exit fees can be avoided
by not switching.
"Therefore, if exit fees purely
move to increased establishment or
ongoing fees, customers may be
worse off," it said.
It could also mean that customers
who stick with their bank effectively
subsidise those who decided to
switch banks.
Continued Page 2

Prediction exit fee

ban may backfire
From Page 1

"Increasing establishment and ongoing fees could "In November, we gave ASIC [Australian Securities
disproportionately impact first-home buyers, as they and Investments Commission] the power to go after
would need additional money at the beginning of their any bank that tries to rebadge an unfair exit fee as
loan, potentially conflicting with the Government's another type of fee, and this applies to both existing
goals in relation to First Home Saver Accounts," it said. and new mortgages," he said.
Treasury also raised the risk that the move could The documents also raised warnings about the
increase expectations the Government would intervene proposal to introduce portable bank account numbers.
even further in the credit market, including by The Government announced it would further investi-
regulating interest rates. "Such precedents could also gate this proposal, which would make account
be extended to other high-profile industries such as numbers similar to mobile phone numbers, which
petrol and groceries," it said. people keep regardless of their provider.
Treasury did say banning exit fees would make it Treasury said the proposal, while attractive from a
easier for customers to switch banks, simpler to competition perspective, would likely impose signifi-
compare loans and it would provide a common cant costs that would be passed on to consumers.
benchmark for all providers. "Further, given consumer inertia and apathy, and
A spokesman for Treasurer Wayne Swan said last Australia's already relatively high rate of account
night that the Government had been "absolutely clear switching, it is unclear how effective this measure
banks won't be able to put in place unfair charges if would be in facilitating additional account switching."
they get rid of mortgage exit fees".

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