Bank fees need testing

Banks will continue to charge sky-high home loan break fees - often reaching tens of thousands - until there is a legal test case or intervention by Parliament, says the outgoing banking ombudsman, Liz Brown.

Rapidly falling interest rates prompted a wave of struggling homeowners locked into high long-term fixed-rate mortgages to approach their bank about moving to the lower rates available to new borrowers. But in many cases banks charge existing customers tens of thousands to change their loan terms.

Brown, who last week announced she's stepping down from the job after almost 14 years, says banks are entitled to charge break fees but they must be reasonable, reflecting the actual cost to the bank of breaking the loan.

Customers who suspect they are being rorted appear to have nowhere to go, as the law is unclear on what the bank is allowed to take into account when calculating this cost.

"I think we will have to have either some amendment to the law or a case before the courts because it's not something an ombudsman or the Commerce Commission can decide," says Brown.

To read the full NZ Herald story click here

Posted: 3 Feb 2009

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