Over 6,400 consumers will be refunded more than $3.3 million by RHG Mortgage Corporation Ltd (RHG), formerly known as RAMS Mortgage Corporation Ltd, following ASIC concerns about discharge and early termination fees charged on home loans terminated since 1 July 2010.
RHG has also agreed to reduce its discharge fees on existing loans and to the staggered removal of early termination fees for thousands of customers going forward.
ASIC was concerned some of RHG’s fees were unconscionable or unjust under the National Credit Code in circumstances where:
- early termination fees on RHG’s Interest Saver products were increased for existing clients from $1,400 in the first year (reducing to $700 in the third year), to a flat fee of $2,000 in the first three years
- discharge fees were increased for existing clients from $590 to $990
- early termination fees were calculated by reference to the amount borrowed (e.g. a percentage of the amount borrowed); and
- early termination fees did not reduce over time.
ASIC took action in relation to RHG after receiving a significant level of complaint.
Early termination fees have generally been charged by lenders in the first three to five years of a loan to recover establishment costs. ASIC has provided guidance that, because lenders recover some of these costs as customers make regular repayments, early termination fees should generally reduce over time.
Discharge fees are payable irrespective of when a loan is terminated to recover the administrative cost of terminating the contract. Lenders must ensure these fees, and any increases to them, are justified.
ASIC Commissioner Peter Kell said, ‘ASIC has been active in monitoring early termination fees. In 2010 we published regulatory guidance on how we would apply the National Credit Code restrictions on fees, and we have been conducting an industry review of early termination fees and will publish a report with detailed findings before the end of the year’.
RHG has started notifying customers who may be entitled to a refund as well as those current customers who will have their fees waived or reduced. This will include refunds to customers of the portion of any discharge fee or early termination fee paid since 1 July 2010 above the originally contracted amount that was applicable before the fee increase. This will also include partial refunds of early termination fees paid since 1 July 2010 on a number of other loans.
Affected customers will receive refunds ranging from $50 to over $10,000, with the most common refund being $400.
Customers eligible for a refund will be contacted by RHG in the coming weeks. Past or present RHG customers who have terminated a loan since 1 July 2010 and who are not contacted in the weeks ahead can also contact RHG with any queries on 1300 658 489.
The National Credit Code, including ASIC’s powers to take action in relation to unconscionable establishment and early termination fees and unjust changes to credit contracts, commenced on 1 July 2010.
New laws which commenced on 1 July 2011 prohibit early termination fees on variable residential loans entered into after 1 July 2011. Loans entered into before 1 July 2011 may still have early termination fees, however, these fees are subject to the National Credit Code restrictions.
In November 2010, ASIC provided guidance on the circumstances where early termination fees may be unconscionable or unfair inRegulatory Guide 220 Early termination fees for residential loans: unconscionable fees and unfair contract terms (RG 220).
Consumers who think they have paid an unconscionable or unfair fee should contact their credit provider in the first instance. If consumers are not satisfied with that outcome they can make a complaint to an external dispute resolution service – either the Financial Ombudsman Service or the Credit Ombudsman Service, depending on the credit provider.
RHG ceased providing loans through RHG Home Loans Ltd (previously known as RAMS Home Loans) in November 2007. At that time, the RAMS brand name was sold to a third party. RHG has no association with the business currently being conducted under the RAMS brand name.
The original ASIC media release can be found here.