Kiwibank, HSBC warned about mortgage fees

Mortgage 'break fees' charged by Kiwibank and HSBC have been criticised by the Commerce Commission. Photo / Greg Bowker

The Commerce Commission has warned Kiwibank and HSBC about the formulas the two banks used to work out mortgage break fees until the middle of last year.

The formulas were likely to have breached the Credit Contracts and Consumer Finance Act (CCCF), the commission said today.

Both banks had changed their formulas, with Kiwibank also making ex-gratia payments of about $689,000 to its customers, and HSBC making ex-gratia payments of about $113,000.

The commission started investigating break fees charged by a range of banks after complaints from customers about the fees following sharp falls in interest rates in late 2008 and early 2009.

The fall in rates led to banks imposing significant break, or prepayment, fees on customers breaking fixed-rate mortgages.

In April last year the commission concluded ASB, SBS Bank, BNZ and National Bank were likely to be charging reasonable fees.

Those banks charged fees based on the change in retail interest rates, which was consistent with CCCF regulations.

Today the commission released the results of investigations it continued to carry out into Kiwibank, HSBC, Westpac, ANZ and GE, which charge prepayment fees based on changes in wholesale interest rates.

The commission said it concluded that basis was likely to produce a fee which was reasonable and therefore complied with the CCCF Act.

In relation to ANZ, Westpac and GE the investigation had been closed with no enforcement action, the commission said.

With Kiwibank and HSBC, the commission said it determined a warning was appropriate in the circumstances.

Commission Auckland fair trading manager Graham Gill said creditors were entitled to charge a reasonable estimate of their loss on prepayment of a loan.

"The Act gives creditors a wide ranging discretion in assessing its loss, and this investigation was focused on the nature of the loss suffered by the banks," said Gill.

"The key loss suffered by the banks relates to interest rate swap contracts, which banks enter into when customers enter into fixed rate loans."

Consumers entering into fixed-rate mortgage contracts needed to ensure they fully understood the implications of the contract they were signing, Gill said.

"If they choose to, or need to, exit the contract earlier than the agreed term they face legitimate bank charges. They should also be aware that, under the CCCF Act, banks can alter the basis of their prepayment fees at any time if they provide customers with appropriate notification of the change."

Results of the investigation had been provided to the Ministry of Consumer Affairs which was reviewing the CCCF Act.

- NZPA