Contracts were clear about when and how early repayment fee would apply

Categories:

Lending, Fees, charges & rates,

Summary:

In August 2025, Robin refinanced two business loans away from the bank to another bank. He complained that the contracts for the loans were vague about early repayment fees, and that the bank had not properly disclosed them. He wanted the bank to reimburse the fees, but the bank refused to do so and he complained to us.

Published:

November 2026

Our investigation

We reviewed the contracts for the two loans. As business loans, they were not regulated by the Credit Contracts and Consumer Finance Act 2003. This meant the bank did not have to comply with section 43 of the Act, which says the fee charged for early repayment of a loan should be a reasonable estimate of a bank’s loss because of a customer repaying the loan early and in full. Instead, Robin’s bank merely had to disclose the fee clearly and calculate the fee correctly if he repaid the loans early.

The contracts said an early repayment fee would apply if the loans were repaid early, and that this applied if the loan was repaid in full, and even if 30 days’ notice was given. Each contract described the fee as three months’ interest at the current rate, along with a break cost if the loan was on a fixed rate (which was not the case). The bank confirmed this in an email to Robin before he refinanced the loans.

We found the bank calculated the fees correctly based on the interest rate applicable to each loan and the balance owing on each loan at the time. The amounts charged matched the amounts calculated using the method disclosed in the contracts.