Banks Profit from Exit Fees

Bank Exit Fees
Banks Profit from Early Exit Fees, as consumers switched from fixed rate mortgages.

CONSUMERS paid $5 billion in bank fees last year after being charged more for switching their loans from fixed to variable rates to take advantage of interest rates being cut in the wake of the global financial crisis.


Bank Fees From Households over the Past 3 Years Up 19.9%:

  • 2007 – Up 8%, 4.5bn
  • 2008 – Up 8%, 4.9bn
  • 2009 – Up 3%, 5bn

Bank Fees from Businesses over the last 3 years Up 31.3%:

  • 2007 – Up 7%, 6.2bn
  • 2008 – Up 9%, 6.8bn
  • 2009 – Up 13%, 7.6bn

Banks Earned 12.7bn in Fees 2009.

The Reserve Bank revealed banks earned $12.7bn in total fees last year, up 9 per cent, primarily driven by growth in residential mortgages and business lending charges.
The RBA data showed mortgages remain one of the most lucrative sources of revenue for the banks.
The fees earned on home loans grew by 17 per cent to $1.23bn, while credit card charges rose by 8 per cent to $1.43bn. There was a 14 per cent rise in personal lending fees, worth $552 million.
The RBA said home loan fee growth was driven by the banks charging customers more for moving their mortgage or switching from a fixed rate to standard variable rates.


Establishment and Exit Fee Bonanza

“The increase in housing fee income was driven by establishment and early exit fees, with the available information suggesting that break fees on fixed-rate loans accounted for a significant proportion of the overall growth in fees,” the RBA said.

“A number of bank customers chose to refinance their fixed rate housing loans with variable rate loans, given the significant fall in the cash rate during the banks’ 2009 financial year.”
The analysis showed that the rate of growth in household fees had slowed to 3 per cent, after growing at 8 per cent for two years. There was also a $120m reduction in the value of ATM fees as customers used the machines less.


Fees Price War

The major banks have started to cut fees on retail customer deposit accounts in a bid to gain market share from their rivals.
It has been estimated the fee reductions put in place by the four leading banks could save Australian customers up to $550m a year.


Businesses Pay for Consumers

However, the move will be funded by banks charging business customers higher fees.
Australian Bankers Association chief executive Steven Munchenberg defended the higher fees and said the bulk of the charges were directed at businesses, which were using banks more often.

A separate ABA report published showed household fees of $5.03bn, which equated to $11.50 a week for the average customer.
“I would argue that people get a range of services for the $11.50, that’s the provision of ATMs, branches, which is good value when you compare other utilities like your phone bill,” Mr Munchenberg said.