early redemption penalty

MarkyMarkD

Then that semi-invalid should have borrowed on a product without a tie-in, if they didn't want any risk of paying an ERC. There are thousands of such products available on the market.

You still aren't getting my main point. Your whole premise is based on the fact that lenders are short of funds - they are not. The scarce resource in their book is people to lend money to.

Just because customer A redeems early, why should the lender have to go and find customer B to borrow the same money?

Or, putting it another way, when customer A redeems early and the lender lends "the same money" to customer B (having gone to considerable effort to find customer why should the lender forego all their profit on both deals by effectively giving it to customer A?

Most loans are loss-making during their initial term. Letting people walk without paying an ERC is a direct cross-subsidy from those who DO stick to their deals to those who walk early. That's why ERCs exist - to level the playing field.