As reported in Australian Broker News on 6 May 2011.  Stay tuned for an update on when the ban will actually proceed or at least ammended to exempt non-banks.

Following months of public hearings and a flood of submissions by industry stakeholders, the Senate inquiry into banking has submitted its report.

The report has expressed concern over the unilateral banning of exit fees, predicting consumers will bear greater up-front costs as a result. It has recommended that the Government reconsider its decision to ban DEFs, and allow time for the effectiveness of existing NCCP regulation on exit fees to be assessed. If the Government decides to go ahead with the ban, the Senate report has recommended the regulations exempt non-banks.

"It is notable that the only financial intermediaries that openly welcomed the abolition of exit fees were the major banks," the report said.

While calling for a greater promotion of competition within the banking sector, the Senate committee has stopped short of recommending more stringent regulation of banks. Rather, it calls for mutuals to be allowed to refer to themselves as banks, and for interest withholding tax to be abolished, removing an impediment to foreign banks. It has also recommended the development of an RMBS support program similar to the Canadian model.

The Senate committee also addressed the issue of LMI, calling for LMI to either be made transferrable, or to always be pro-rata refundable. The report also backed Shadow Treasurer Joe Hockey's recommendation of a full, Wallis-style inquiry into the financial services sector.

The MFAA has praised the recommendations on mortgage exit fees, saying that home-buyers will be the winners if the findings are adopted by government. “The Committee heard the submissions and formed the view that banning exit fees would hurt small mortgage lenders,” said CEO Phil Naylor. “It was small and non-bank lenders who made mortgages so competitive in the decade to 2006."