No Automatic Entitlement to Break Fee Discounts

MEDIA RELEASE

14 June 2012



No Automatic Entitlement to Break Fee Discounts

The Banking Ombudsman, Deborah Battell is advising customers that there is no automatic entitlement to break fee discounts. Ms Battell said today that her office has started receiving complaints from bank customers following recent media reports that banks have been waiving or discounting break fees on fixed term mortgages.

“Customers have heard that banks have been reducing or waiving break fees and they are complaining that their bank won’t do this for them.

“I am not aware of how widespread the discounting is, nor do I have direct evidence that it is happening,” Ms Battell said. “But I can say that banks are legally able to charge break fees and they are not obliged to offer discounts.

“Break fees are specifically allowed for in credit contracts legislation and are designed to compensate banks for the costs they incur when customers break their fixed term contracts.

“Banks can also decide whether they want to discount or waive fees and may choose to do so in individual cases. If this is happening, it is likely to be a response to the current highly competitive environment for lending. It does not mean that banks will do this for everyone,” Ms Battell added.

The Banking Ombudsman is not able to require banks to discount or waive break fees. This is a matter of each bank’s commercial judgement. The Banking Ombudsman can, however, look at a range of issues regarding break fees. These are also set out in our Quick Guide.

Further background information on the Banking Ombudsman Scheme can be found on www.bankomb.org.nz.

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