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Banks repay $0.8m in overcharged break fees

Two banks have had a rap on the knuckles and repaid $0.8 million in overcharged break fees on fixed-term loans following complaints after the sharp drop in interest rates in late 2008 and early 2009.

Wednesday, May 12th 2010, 12:47PM 1 Comment

by Jenha White

The Commerce Commission has concluded its investigation, which was prompted by complaints from bank customers, under the Credit Contracts and Consumer Finance Act (CCCF) into the mortgage break fees charged by banks when customers repay their fixed-rate loans early.

As a result, Kiwibank and HSBC have each been issued with a warning on the basis that the formulae they were using until mid-2009 had technical deficiencies. During the investigation both banks changed their formula.

Kiwibank has since made ex-gratia payments to its customers totalling approximately $689,000 while HSBC made ex-gratia payments to its customers totalling approximately $113,000.

Commerce Commission Auckland Fair Trading manager, Graham Gill, says the commission recognised that given the variance in fees being charged, that it was a significant and important issue for many bank customers and accordingly the commission conducted a comprehensive investigation of the matter.

He says there is a great deal of complexity in the formulae, the underlying banking arrangements, related legal issues and in the act itself which meant the investigation needed to be thorough in considering every aspect.

"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."

He says the key loss suffered by the banks relates to interest rate swap contracts, which banks enter into when customers enter into fixed rate loans.

Gill advises that 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," says Gill.

 

Jenha is a TPL staff reporter. jenha@tarawera.co.nz

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Comments from our readers

On 13 May 2010 at 9:00 am Hana Crawford-Bowden said:
My husband and I were charged a penalty break fee of approximately $21,000.00 from Westpac January 2009. I wrote a letter to the Banking Ombudsman and spoke several times to a representative but I was basically told that there was nothing that could be done. A long and very sad story. We did however get $2000.00 from Westpac. Their calculations for penalty break fees was extremely over the top but what could I have done?
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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
ANZ 5.19 4.05 3.95 4.49
ANZ Special - 3.55 3.45 3.99
ASB Bank 5.20 4.05 3.95 4.39
ASB Bank Special - 3.55 3.45 3.89
BNZ - Classic - 3.55 3.45 3.99
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
Lender Flt 1yr 2yr 3yr
Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
HSBC Premier 5.24 3.35 3.35 3.35
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.15 3.18 3.18 3.20
Kainga Ora 5.18 4.04 3.95 4.39
Kiwibank 5.80 ▼4.14 ▲4.30 4.64
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - ▼3.39 ▲3.55 3.89
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.25 4.15 -
Pepper Money Near Prime 5.64 - 5.44 5.44
Lender Flt 1yr 2yr 3yr
Pepper Money Prime 5.18 - 4.98 4.98
Pepper Money Specialist 7.59 - 7.39 7.39
Resimac 4.50 4.86 3.89 3.94
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - ▼3.55 3.39 3.89
Sovereign 5.30 4.15 4.29 4.55
Sovereign Special - 3.65 3.75 4.05
The Co-operative Bank - Owner Occ 5.15 3.49 3.59 3.89
The Co-operative Bank - Standard 5.15 3.99 4.09 4.39
TSB Bank 6.09 4.35 4.25 4.69
Lender Flt 1yr 2yr 3yr
TSB Special 5.29 3.55 3.45 3.89
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Westpac - Offset 5.34 - - -
Westpac Special - 3.55 3.45 3.99
Median 5.34 4.04 4.09 4.39

Last updated: 15 November 2019 4:16pm

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