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The undercutting practice demonstrated by some lender discharge teams is “grubby”, “ludicrous” and “narrow minded”, the FBAA managing director has said.
The comments come as the broking industry voices alarm at a growing frequency of lender retention teams providing discounted interest rates and cashback incentives to customers who are on the brink of refinancing out their loans.
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The crux of the problem centres on the fact that these offers are not made when brokers are requesting them, but only at the loan discharge stage – when time and money have already been spent by both the broker and the borrower on applying for a loan elsewhere.
Speaking to The Adviser about the problem, the managing director of the Finance Brokers Association of Australia (FBAA), Peter White AM, said that he thought the “dirty, underhanded grubby tactics to try and retain borrowers when [a lender has] already lost them” were “absolutely ludicrous”, “narrow minded” and “short visioned”.
“There’s not an infinite number of lenders in Australia. These things run around circles. So what you might lose with one hand, they’d pick up with another. But they don’t seem to get it, all they do is create enemies. It is the dumbest thing on the planet,” Mr White said.
“Brokers work so goddamn hard… the average time it takes for a broker to actually process a loan application has risen by 52.3 per cent to now being about 17 hours of work per file, on average.
“So, they spend 17 hours of work only to have, at the last minute, some[one] in a retention centre pull the rug out from under them. And now that’s all lost time and money that they will never recover…
“If you’re a lender using a broker for distribution, you’re really crapping in their nest big time by doing this because a broker has a cost to run the business. And it’s completely disrespectful for them to pull the rug out from underneath them at the last minute. There’s no respect for the fact that somebody’s going to incur all these costs.”
Causing ‘heartache’ to borrowers
Mr White suggested that, as well as costing brokers, the last-minute offers were also costing borrowers.
He explained: “There would have been a cost to the [borrower], who would have had valuations done [for the new loan]. The borrower has spent money on this… and while the cashback might offset some of those costs (if they’re offered one), it’s not like they put all of that in their pocket as a net gain. There’s been a whole lot of time and money spent to get to this point.”
These customers would likely be additionally dissatisfied with their outgoing lender by the fact that they are only “coming to the table” when the loan is ready to be discharged and the customer is “walking out the door”, he added.
“If it was me, I would be asking: ‘Why didn’t you do this to start with?’ Particularly if it cost me a whole lot of pain and heartache I didn’t need to have gone through in the process,” the FBAA MD said.
“The [borrower] might be trying to purchase something else or trying to refinance because they need money to pay in for renovations or put it into a pool… Whatever the reason is, it’s all got stalled because of the [lender’s] retention team…
“To, all of a sudden, find that [the lender is] going to roll over and play dead and give me the world as my oyster... they’ve created a whole lot of unnecessary heartache.
“If you [lenders] really cared about your client, you should have been doing something for them ages before in the cycle, not at the last minute.
“If they are able to offer a client a better deal without this sort of thing happening, why didn’t they give it to them beforehand? It’s only at the end of Death’s Door [that this happens]... Why didn’t [they] give [them] this to start with?”
The head of the broker association said that while the issue hadn’t been raised by broker members during recent focus groups, he said that the association would be expanding its work on tackling clawbacks to incorporate this issue.
According to FBAA research on commission clawbacks, the number clawbacks has increased by 30 per cent over the last three years – 60 per cent of which were caused by lender cashback offers.
“These cashback offers are actually driving churn in the marketplace, which is resulting in increased clawbacks for brokers,” he said.
Instead of using cashback to incentivise borrowers to stay when at discharge and causing frustrations from both the broker channel and borrowers, Mr White suggested that lenders should instead be looking proactively rewarding customers who remain with them.
“It’s cheaper to retain someone than to find a new one [customer]. So they’d be better off dropping 0.05 or 0.1 of a percent to keep the loan going longer... I just don’t understand the logic of not doing something like that, in rewarding the long-term customer,” Mr White concluded.
“Why doesn’t [the lender] just offer them a $3,000 incentive just to stay there 12 months ago, without waiting for the discharge document to come through? That just sours the relationship.”
[Related: Brokers warn of rising channel conflict behaviours]
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