More than $1 million in overpaid break fees has been returned to home owners after a Commerce Commission crackdown on mortgage lenders.The Commerce Commission has spent 18 months investigating the fees banks charge customers to repay their fixed rate loan
More than $1 million in overpaid break fees has been returned to home owners after a Commerce Commission crackdown on mortgage lenders.
The Commerce Commission has spent 18 months investigating the fees banks charge customers to repay their fixed rate loans early.
This followed a raft of complaints when the sharp fall in interest rates in late 2008 and early 2009 saw many customers keen to break their fixed-term home loans early.
Kiwibank was found to be the worst offender, calculating break fees with a formula that breached of the Credit Contracts and Consumer Finance Act (CCCF Act).
The state-owned bank corrected its formula during the investigation and repaid customers $689,000 in ex-gratia payments.
HSBC was also warned about its formula and has repaid $113,000 in ex-gratia payments
Non-bank lender Foundation Custodians is also refunding $200,000 to 35 customers after admitting its fees for early loan repayments breached the CCCF and Fair Trading Acts.
Other major banks, ASB, SBS Bank, BNZ and National Bank, were in the clear for their break-fee calculations during the period as they calculated fees based on the change in retail interest rates.
Break fees, or prepayment fees, are charged to recover lender losses when a customer repays a loan early.
Under the CCCF Act, lenders can recover their loss when a customer makes an early prepayment or breaks the term of a fixed interest loan, provided they use an appropriate formula to calculate a reasonable estimate of loss.
Commerce Commission fair trading manager Graham Gill said consumers were entitled to presume that the terms and conditions in their credit contract will be followed by their credit provider when break fees are calculated.
“As the formulae that mortgage providers use to calculate break fees is complicated, it is difficult for the average consumer to work out whether they have been charged the correct fee. It is important that businesses providing consumer credit ensure that their conduct is consistent with the contract and complies with the relevant legislation.”
Mr Gill said banks can, under the CCCF Act, alter the basis of their payment fees at any time if they provide customers with appropriate notification of the change.
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