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The regulation prohibiting exit fees has been amended in the National Consumer Credit Protection Act.
According to a statement by Gadens Lawyers, regulation 79A of the Act prohibits a credit fee or charge in a credit contract entered into on or after 1 July 2011 to be paid on, or in relation to, the termination of the credit contract, but only when the credit is secured over residential property and is regulated by the National Credit Code.
The prohibition does not apply to break fees or discharge fees.
A break fee is defined as relating to early repayment of a fixed rate loan.
Break costs will be calculated relating ‘to the difference between the fixed interest rate (under the credit contract) and the prevailing rate at which credit is provided by the credit provider under that class of credit contract’.
“Considerable concern had been expressed about the prohibition generally, but leaving that aside, the definition of break costs does not accord with how break costs are commonly calculated,” the statement read.
“Usually break costs are calculated by reference to the cost or loss to the lender of terminating arrangements under which it funded the fixed rate loan. Very rarely is the break cost calculated in the way envisaged by the regulation.”
Under the amendments, section 79A will now define a break cost as ‘a credit fee or charge that relates only to the early repayment of an amount provided under a credit contract for a fixed rate loan; to the portion of the loan that is fixed; and to the part of the credit provider’s loss, arising from the early repayment.
“Lenders should be aware, however, that break fees remain subject to existing provisions of the National Credit Code including provisions relating to unconscionable fees and charges,” the statement read.