Tougher laws to crack down on bank fees would encourage banks to raise their lending rates beyond Reserve Bank moves more often according to the Australian Banker’s Association (ABA).
The corporate regulator is scheduled to announce new rules this week governing the exit fees lenders can charge borrowers for switching loans.
That was almost double the quarter of a percentage point rate rise announced by the Reserve Bank on Melbourne Cup Day.
Bank customers face exit fees if they want to switch to a loan with another bank.
While these fees are unpopular, Australian Bankers’ Association (ABA) chief executive Steven Munchenberg said more regulation would make it harder for Australian banks to source funds from overseas investors.
“If Australia becomes more risky because of government intervention, including through regulation, those international investors may start pricing that in, affecting how much they charge Australian banks,” he said.
“That puts the costs of funding up and that makes banks move outside (the adjustments of) the Reserve Bank of Australia.”
Political debate about bank fees during the past few weeks had “spooked” crucial international investors, Mr Munchenberg said.
Banks typically source about a third of their funds from global money markets, with the rest coming from the deposit accounts of customers.
With the Australian Securities and Investments Commission set to announce new rules this week, shadow treasurer Joe Hockey has suggested the banks could find ways to get around the abolition of exit fees.
“The banks may well put in place, if they don’t already do so, a set of exit conditions where you have to give, say six months notice to the bank before you can close down your mortgage and move somewhere else,” he said.
Mr Munchenberg said banks would be unlikely to find backdoor ways to make it harder for people to move mortgages.
Finance Minister Penny Wong said the Commonwealth Bank’s decision to raise rates beyond the official level had stirred deep-seated anger in the community about banks.
“We’d all agree it’s time the banks started listening very very carefully to the Australian people,” she said.
Unnamed banking officials have told News Limited the banks would pre-emptively abolish exit fees.
Under the existing regime, banks charge exit fees of between $700 and $900 if borrowers want to switch out of a loan within the first four years.
Non-bank lenders charge considerably more, with the most expensive exit fees ranging from $4100 and $7300 for borrowers wishing to switch a loan within the first three years.
Banks and non-banks charge separate fees to discharge from a loan and set up a new one, which together with exit fees can conservatively cost more than $1,500.
The Australian Greens’ sole lower house MP Adam Bandt plans to introduce a motion to parliament next week to cap bank mortgage exit fees at the actual cost to the lender.
It would mirror a Greens motion introduced to the Senate in April.
Meanwhile, Westpac chief executive Gail Kelly has confirmed she will appear before a Senate inquiry into competition in the banking industry next month.
* Article contributed by AAP by Curtis Cooper