The MFAA has indicated its support for deferred establishment fees (DEFs) as part of its formal response to ASIC in regard to the regulator's consultation on unfair and unconscionable exit fees.
The industry body claims that DEFs are a mechanism allowing the non-bank sector to offer increasingly competitive interest rates to borrowers.
“A deferred established fee is not a penalty for breach of contract or even a fee for early repayment, it is applicable when a lender gives the borrower the option of deferring the establishment costs of the loan (which most lenders require to be paid up front) in return for a lower rate,” said MFAA chief executive Phil Naylor.
“There is no requirement to pay the fee at all if the loan continues beyond a specified period; usually three-five years,” he added.
Naylor warned than any regulatory intervention on DEFs could "ultimately be to the detriment of consumers".
“The reality is if non-bank lenders were required to diminish deferred establishment fees, the end result would be higher up-front fees and higher interest rates," Naylor said. In turn, this would reduce any downward pressure on interest rates, and reduce the likelihood of innovative and competitive products."
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Counrty Broker on
11 Aug 2010 10:24 AM
This stand is very niave in many ways , if it is a genuine DERF like that charged by some non bank lenders that is OK.There are no establishement fees charges and a say 1.5 DERF in the first 5 yaers is a reasonable cost recovery, especially if there is NO CLAWBACK.
What I get cranky about is when there are up front application fees, and a penalty is charged for early payout and the Broker is charged a clawback, even if it is an internal refinance ( one of the reasons I REFUSE to deal with the CBA).
These type of suitations are plainly "double dipping" and must be addressed by the goverment as simply illegal. ASIC needs to get involved as does the MFAA .
Broker on
11 Aug 2010 10:31 AM
I have just learnt over the years to expect nothing but spin from the MFAA and ASIC, it keeps me from getting disappointed!!!
TH on
12 Aug 2010 10:45 AM
Fully expect this approach from the MFAA. They have consistently shown themselves to value the business of the lenders, such as the CBA far more than that of the brokers. "Double dipping" by lenders is inappropriate and needs to be stopped. We have one of the most expensive banking systems in the world yet one of the worst for consumer protection. Lets see some of the billions of dollars in profit allocated to serious reduction of loan costs and implementation of security proceedures on banking such as internet fraud and credit cards. Won''t hold my breath for either the MFAA or major lenders to grow a conscience.