Mortgage exit fees on the way out as Gillard pledges to improve banking competition

Exit fees on mortgages appear almost certain to be a thing of the past, with the Federal Government tipped to give the Australian Securities and Investment Commission the power to outlaw the controversial charges.

But the Government could be beaten by the punch by the banks themselves, with reports this morning suggesting the banks are considering pre-empting the Government crackdown by scrapping the fees.

Exit fees, which essentially penalises a borrower for leaving a loan before it ends, have long been considered one of the greatest barriers to real competition in the lending market.

The fees are typically higher than $900 and when other fees (such as new account charges and title change charges) are added in the cost of switching from one bank to another can get up towards $1,500 – often negating the savings a loan change may generate.

But Prime Minster Julia Gillard and Treasurer Wayne Swan now have their sites firmly fixed on outlawing the charges and are expected to announce a plan to do so later this week.

“I would say to Australians the measures that we will bring forward will add to competition in the banking sector,” Gillard told the Nine Network yesterday.

“They will see this week the ‘operationalising’ of the measure to crack down on unfair mortgage exit fees, which keep people tied into banking products they no longer want, and they can get a better deal elsewhere.”

However, a report in the Daily Telegraph this morning suggests the banks may look to dump the fees themselves before the Government move.

Unnamed officials quoted in the report say mounting community pressure against the fees could force the banks to move before the Government does.

But the Opposition, who have been leading calls for banking reform in the last few weeks, particularly from Shadow Treasurer Joe Hockey, isn’t convinced the crackdown on exit fees will work without other strategies to increase competition.

“Really and truly, this is a government which has been getting angry with banks time and time again without actually making any difference,” Opposition leader Tony Abbott told ABC Radio this morning.

The Opposition will push ahead with plans to introduce a private member’s bill that would increase the ACCC’s power to crack down on banks using “price signalling” to warn each other when they are set to increase interest rates.