2016 - 2017
Ms H had a fixed-rate home loan but wanted to take advantage of lower interest rates. She asked her bank what it would cost to break her loan and what competitive rates it could offer. She also wanted a cash incentive to remain a customer. The bank gave her information about early repayment charges, but said it wouldn’t offer a cash incentive. The rates weren’t to her satisfaction, and she told the bank she would be refinancing with another bank.
Ms H’s lawyer contacted the bank and asked it to discharge the mortgage and to provide a settlement statement (a document stating how much Ms H had to repay the bank). The next day, the bank called Ms H to say she would also have to repay the $4,000 cash contribution it gave her when she fixed her loan 18 months earlier. It said a condition of the cash contribution was that she stayed with the bank for two years. Although unhappy with this news, Ms H went ahead with the refinancing, which included repaying the $4,000.
Ms H complained that the bank had no right to make her repay the cash contribution because it failed to remind her of it when she said she was going to refinance. If it had brought this to her attention, she would have stayed with the bank for another six months and then refinanced. This would have saved her $4,000.
We examined the cash contribution offer. It made clear she would have to repay the money if she refinanced within two years.
As for any obligation to remind Ms H of that condition, the Code of Banking Practice requires banks to disclose the conditions of a cash contribution at the time it is given, and later on request. Ms H had told the bank she intended refinancing with another bank, but she hadn’t asked for information about the cost of refinancing. When her lawyer sought this information, the bank promptly brought to her attention the repayment of the cash contribution.
It would be best practice for banks to remind customers they may have to repay any cash contribution if refinancing with another bank, but they are not obliged to do so.
We found that the bank, having met its disclosure obligations, had the right to require Ms H to repay the $4,000.