'Banks should disclose break fees' - Nat MP

[drelly]

How can you propose a bill without actually understanding the process you're making a proposal about???

http://www.nzherald.co.nz/business/n...ectid=10570456

'Banks should disclose break fees' - Nat MP
12:00PM Tuesday May 05, 2009


A National MP is putting forward a member's bill to ensure lenders tell borrowers how much they'll pay if they break their mortgage.

The Credit Contracts and Consumer Finance (Break Fee Disclosure) Amendment Bill will require banks and other credit providers to include the dollar amount of any break fee payable in the credit contract, as well as a plain English description of the calculation.

[Green Fish]

Nuts

I have to agree with Poomba on this: What a bunch of bedwetters!

To all the 'average-Joe' dickheads out there: You voluntarily signed a loan agreement whereby you agreed to pay the bank interest at x% for a fixed term. That's the deal.

If you want to change the deal, then the bank can charge you whatever the bank pleases. And if you don't like the amount nominated by the bank, then your recourse is to do what you promised to do, and honour the contract.

[Xav]

Um, wat?

How on earth could a stated figure fixed at the time of signing the contract be a fair reflection of the cost to the bank at the eventual time of early repayment, as required by the CCCFA?

"I'm sorry Mr Jones, I know you only had 2 months left to run in your fixed rate period and that interest rates have only fallen 0.1%, but it clearly states in your contract that your fee will be $10,000.00. You can thank Mr Gilmore."

Where do they come up with these ideas

[Green Fish]

If the Credit Contracts Act provides a statutory right to early repayment, whatever be the terms of the contract, then I stand to be corrected.

[roseneath_rat]

Either one of two situations:
1. The guy is ignorant of the factors involved in calculating a break cost, eg- time left to run on loan, interest differential & loan amount. These change all the time during the life of the loan so a 'cost to break' figure would be rubbish even if provided.
2. A backbencher is trying to raise his profile by getting some cheap media attention on a hot-button so that he can one day get noticed & moved onto a front bench.

[drelly]

Greenfish,

It also specifies that early repayment fees must reflect actual costs. Considering that they have cleared the banks charging fees based on retail rates, I don't see how they can clear the others when they're charging twice as much due to the use of wholesale rates in their calculation.

Roseneath,

Yes, I thought the same. While it's well-intentioned, it's misguided. How can any bank specify fees when they're based on variables?

[Xav]

If the Credit Contracts Act provides a statutory right to early repayment, whatever be the terms of the contract, then I stand to be corrected.

Our posts crossed, my "wat" was directed at the National MP not you. Obviously I need to type faster

There is a statutory right to early repayment - the right of redemption in the Property Law Act. I agree with your post though.

[Monkeyboy]

It is written into the contract. The break cost is quite simple. Whatever it costs the bank you're paying. Most people break their loans to save guess what, pretty much the same as the lender. If interest rates go down after breaking then you are still on a winner.

[roseneath_rat]

It also specifies that early repayment fees must reflect actual costs. Considering that they have cleared the banks charging fees based on retail rates, I don't see how they can clear the others when they're charging twice as much due to the use of wholesale rates in their calculation

Not necessarily, if it is fully disclosed to the customer up front and if it is still linked to the costs of the loan. I believe the difference between the wholesale & retail rates is the 'margin' between them. Over the last 8 months as interest rates have fallen so quickly & aggressively, most banks margin has crept up over wholesale rates because the it better represents the actual costs of sourcing funds.

[mortgage broker]

What you guys posting have to understand is that real life and politics are two different things. I think the politically the guy has a brilliant idea showing that this Party is doing something about these terrible break fees being charged to poor property owners who just want to take advantage of the lower rates which they never knew about before fixing their home loans.

I think the party should go a step further and enforce these rogue banks to disclose the future interest rates as well. If they had done this from the beginning none of this break fees problem would have come about. Everyone would have been able to plan effectively.

I hope everyone here understands the importance of action over the willy nilly nature of logic.

[captaincrab]

I must be reading things differently. What he wants, is to make sure the Banks disclose the formula in "plain english" not complicated jargon
There is a whole movement towards making the wording in Contracts a lot clearer. This will just be an amendment to the CCCFA

[dandan]

I must be reading things differently. What he wants, is to make sure the Banks disclose the formula in "plain english" not complicated jargon
There is a whole movement towards making the wording in Contracts a lot clearer. This will just be an amendment to the CCCFA

I'm of the opinion this is already covered in the fair trading act. If a bank wants to make their formula technique ambiguous, they run the risk of the borrower interpreting the break technique different to the banks intention, they would need a corporate table at the disputes tribunal so that each time a loan is broken, each party can discuss it's interpretation of the break technique.

[Judge]

Green fish,

Considering that they have cleared the banks charging fees based on retail rates, I don't see how they can clear the others when they're charging twice as much due to the use of wholesale rates in their calculation.

The Commerce Commission has cleared all the banks except for Westpac, Kiwibank and one other. I would be very interested to hear what ComCom has to say about these two banks.

[drelly]

Yep, those are the ones using wholesale rates in their calculations.

[Xav]

I must be reading things differently. What he wants, is to make sure the Banks disclose the formula in "plain english" not complicated jargon

The banks, with the exception of Kiwibank and Westpac, reproduce the forumla in the CCCFA, so it is hardly their fault!

The Commerce Commission has cleared all the banks except for Westpac, Kiwibank and one other. I would be very interested to hear what ComCom has to say about these two banks.

The Courts have recently upheld calculating the fee on an alternative basis. The way the finance company was doing it would give a figure even higher than Westpac or Kiwibanks I suspect. Unfortunately I don't have the case handy, will try and dig it up.