The study of 200 loan products also shows that the lowest exit fees are charged by credit unions and building societies when compared to these finance companies or ‘non-authorised deposit taking institutions’ (ADI).

Professor Ian Ramsay of the Melbourne Law School’s Centre for Corporate Law & Securities Regulation alongside Neil Ashton looked at exit fees for March this year, comparing them to ASIC data from 2008. 

They found that average exit fees on a $250,000 variable rate loan were just under $420 for credit unions or building societies compared with a non-ADI average of $1900. Some exit fees were more than $5,000.

Exit fees on variable rate home loans are a concern for several reasons, says Professor Ramsay.

“First, exit fees can work as a disincentive to changing credit providers. Second, as contingent and deferred fees, exit fees can also be less transparent and harder for consumers to properly evaluate.”

“Of particular concern is that earlier research by ASIC indicates that the proportion of exit fees as a percentage of the total fee for home loans take has expanded.  From 1995 to 2007 the exit fee take increased from 19.31% of total fees for home loans to 41.83% of total fees.”

“Because refinancing of existing home loans is an integral part of the overall Australian housing finance market, high exit fees therefore assume increased importance given they may be relevant to a consumer who wants to refinance an existing home loan.”

The authors observe that 58% of the home loans studied had exit fees and with such a dramatic difference between the highest and lowest exit fees, consumers in the market for a first home loan or to refinance an existing loan need to be asking about exit fees and factoring in the cost of these fees to their decision.

However Neil Ashton says there is hope on the horizon for consumers, with home loan exit fees set to be regulated this year by the new National Consumer Credit Protection Act.  

“Because the new Act requires all consumer credit providers to be licensed, this may place pressure on some credit providers to reduce high exit fees.”

“It also means that some high exit fees may now be challenged under the Act, provided that the consumer can show that the fee exceeds what would be considered a reasonable estimate of the credit provider’s loss arising from such an early termination.”

Recent Australian Bureau of Statistics data to 2008 puts the amount of debt owed by Australian households at $1.1 trillion, a rise of almost six fold since 1990.  Owner occupied housing was the highest component of all household debt during this time, comprising between 56% to 67% of total debt.

The complete study is available at http://cclsr.law.unimelb.edu.au/go/news/index.cfm.

You can watch Professor Ramsay discussing the study in more detail at http://visions.unimelb.edu.au.