Regulatory Alerts2023-11-09 | RG-220RG 220 Early termination fees for residential loans: Unconscionable fees and unfair contract terms
The Australian Securities and Investments Commission (ASIC) issued this guide to inform lenders regulated under the National Credit Act about when early termination fees for residential loans may be deemed unconscionable or unfair. It outlines the specific factors ASIC will evaluate when determining whether to pursue enforcement action against potential breaches of the National Credit Code or ASIC Act. The guidance specifically applies to credit contracts entered into before 1 July 2011 or those containing exempt break fees, as subsequent regulations generally prohibit such charges.
Issued 9 November 2023
This is a guide for lenders who provide home loans or residential investment loans (residential loans) regulated by the National Consumer Credit Protection Act 2009 (National Credit Act).
It gives general guidance on when an early termination fee for a residential loan may be unconscionable under Sch 1 of the National Credit Act (National Credit Code) or unfair under the Australian Securities and Investments Commission Act 2001 (ASIC Act). It sets out the factors ASIC will consider in deciding whether to take action on potential breaches of these provisions.
From 1 July 2011, the National Consumer Credit Protection Regulations 2010 (National Credit Regulations) prohibit early termination fees for residential loans, subject to some limited exceptions. This guide is relevant to credit contracts for residential loans:
with early termination fees that were entered into before 1 July 2011, or
with early termination fees not prohibited by the regulations (e.g. break fees).
Download RG 220 (PDF 732 KB)
Read the regulation impact statement (PDF 277 KB)