The National Consumer Credit Protection Amendment Regulations 2011 (No. 2) were made and published on 23 March 2011.

The Regulations prohibit a credit fee or charge if:
• it is provided for in a credit contract entered into on or after 1 July 2011;
• it is to be paid on or in relation to the termination of the credit contact, whether the liability to make the payment is incurred at that time or at an earlier time; and
• any of the amount of credit provided under the credit contract is secured over residential property.

The prohibition does not apply to “break fees”, discharge fees, and credit fees or charges incurred before the termination of a credit contract that is terminated before any credit has been provided under the contract.

The prohibition would apply to deferred administration and establishment fees, fees for terminating a variable rate loan early, unreasonable discharge fees and permitted fees that do not reflect costs incurred by a credit provider.

The regulation will prohibit exit fees which are charged when a contract secured over residential property ends regardless of whether it is on an early termination or on maturity.

What credit contracts are affected?
The regulation is not limited to “home loans”. The prohibition has been extended to all credit contracts wholly or partly secured by residential
property, subject to regulation 65C which currently provides that the Code does not apply to the provision of credit if the credit is provided for the purpose of investment in residential property, the credit is not provided for purpose of investment in a single residence and, if the total amount of credit provided, or to be provided, is more than $5 million.

What is a break fee?
The definition has changed from the exposure draft. Break fee means 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, relates only to the portion of the loan that is fixed, and relates to the difference between the fixed interest rate and the prevailing rate at which credit is provided by the credit provider under that class of credit contract.

Fixed rate loan means a credit contract under which the annual percentage rate is fixed for an agreed term, for the whole or part of the amount due under the credit contract.

What is a discharge fee?
Discharge fee means a credit fee or charge that only reimburses a credit provider for the reasonable administrative cost of terminating the credit contract.

A cost is a reasonable administrative cost only if it does not exceed a reasonable estimate of the average reasonable administrative cost to the credit provider of terminating that class of credit contract.