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Home loan – fixed rate – loan agreement signed in anticipation of purchase that did not proceed – break fee charged
Mr S approached the bank for finance to purchase an investment property. Interest rates were expected to rise, and after discussion with the bank, even though the property purchase was still conditional, he signed a loan offer letter fixing the interest rate for two years.
Two weeks later Mr S advised the bank that the purchase would not be proceeding. The bank then charged Mr S nearly $6,000 as an exit fee, being the cost to the bank of breaking the fixed interest rate contract. The bank relied upon a statement in the loan offer letter stating that all costs and expenses associated with the establishment and maintenance of the facility would be the responsibility of the borrower. The bank also said that the staff member concerned had orally advised Mr S that there would be a cost should the loan not proceed. Mr S said he had no idea that, should he decide not to proceed with the loan, a penalty would be incurred. He complained to the bank but was unable to resolve the matter, and referred the complaint to me.
I concluded that the bank had not adequately disclosed to Mr S that an exit fee would be charged if the fixed rate loan did not proceed. The loan offer letter stated that the borrower had to pay all costs associated with the establishment and maintenance of the facility, but did not mention a cost associated with the termination of such a facility. I was also satisfied that, if Mr S had been told by the bank officer that a substantial penalty might apply if the loan did not proceed, it was unlikely that he would have agreed to fix the interest rate, given that the contract to purchase the property was not yet unconditional. Emails exchanged between Mr S and the bank very shortly after Mr S advised that he did not wish to proceed with the loan also indicated that he had not been previously warned of the exit fee.
I proposed, and both parties accepted, that the bank would reimburse the exit fee charged.