Mortgage Fees: Mortgage Break Fees Investigation Completed
June 15th, 2010
The Commerce Commission has concluded its investigation under the Credit Contracts and Consumer Finance Act (CCCF Act) into the mortgage break fees charged by banks when customers repay their fixed-rate loans early. It says the banks are charging “reasonable” fees.
Graham Gill, Fair Trading Manager for the Commerce Commission in Auckland says “creditors are entitled to charge a reasonable estimate of their loss on prepayment of a loan. The Act gives creditors a wide ranging discretion in assessing its loss, and this investigation was focused on the nature of the loss suffered by the banks. The key loss suffered by the banks relates to interest rate swap contracts, which banks enter into when customers enter into fixed rate loans.”
He says consumers entering into fixed-rate mortgage contracts need to ensure they fully understand the implications of the contract they are signing. If they choose to, or need to, exit the contract earlier than the agreed term they face legitimate bank charges. They should also be aware that, under the CCCF Act, banks can alter the basis of their prepayment fees at any time if they provide customers with appropriate notification of the change.
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