We are seeing a significant number of clients now who are having problems with the fees that Banks are charging them. In the last few months we have had several examples of problems occurring when a Bank customer wants to payout/refinance their loan with their Bank and the Bank imposes a “early repayment penalty” or some other charge which imposes a charge on the customer whose only crime is that they are wishing to pay their loan out early.
The Banks of course would have you believe that the customer simply has to pay the charge because there is a Clause in the original Loan/Mortgage documents which allows the Bank to charge that type of fee generally.
This however is an example of situations where in spite of what is in the documents that you sign, there is an overriding law which places limits on the amount the lender can charge. Indeed, the law in some situations will prevent the Bank from charging anything.
There are two (2) ways in which the law restricts the freedom of the Banks in this regard. Firstly, the Uniform Consumer Credit Code sets out a number of restrictions on what the Lender can do in certain circumstances. One of the restrictions is Section 72(4) of the Code which invalidates “unconscionable interest and other charges” and allow charges to be reviewed. The Review can be conducted by the Bank, by the Financial Services Ombudsmen or by a Court.
Section 72 (4) specifically says that “a fee or charge payable on early termination” ….. “is unconscionable” …. “if it appears that it exceeds a reasonable estimate of the credit provider’s loss arising from early termination or prepayment”. The effect of this is that the Bank has to justify the amount that it wants to charge. If no “loss” is in fact to be suffered then the Bank is not entitled to charge anything.
The other option readily available is to lodge a complaint with the Financial Services Ombudsman (www.fos.org.au) which will carry out the exercise of recalculating the charge and forming an opinion as to whether it is a reasonable estimate of the Bank’s loss or not.
In one recent case the Bank went from wanting to charge a customer $4,700.00 to agreeing to charge nothing. In another case the charge was reduced from nearly $10,000.00 to less than half that figure.
If you believe that a Bank is seeking to impose an unreasonable fee or charge upon you we would urge you to obtain advice as to whether or not the Bank can be challenged. As a practical matter, what often occurs is that rather than delay the payout of the loan, the customer proceeds to pay the charge but does so having given specific written notice that they reserve their rights to challenge the amount involved. The process in challenging the amount can sometimes take a little while and it is therefore sometimes better for the customer to proceed with the transaction rather than see it held up, and to then challenge the Bank’s calculations and hopefully obtain a refund later.