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Brokers are being asked to submit expressions of interest in whether they would support the establishment of a national mortgage broker legal fund that will determine whether legal action could be taken off the back of any potential regulatory changes.
A group of mortgage brokers with assistance from David Shaw from law firm Holding Redlich and former-litigator-turned-ANU-researcher and lecturer Tracey Mylecharane are looking to establish a National Mortgage Broker Legal Fund.
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This group would consider the basis for any policy change surrounding commission-based remuneration for mortgage brokers and will actively prepare to test, through litigation, any legislative or policy steps that are taken which could negatively impact on mortgage brokers.
An additional objective of the fund is to be able to represent mortgage brokers in any individual legal disputes, and to establish a scheme to fund any future legal costs incurred by mortgage brokers because of the actions of the industry – whether that be banks, regulators or third parties.
The move has been triggered following the recommendations of the banking royal commission, which recommended that changes in brokers’ remuneration should be made over a period of two or three years, by first prohibiting lenders from paying trail commission to mortgage brokers in respect of new loans, then prohibiting lenders from paying other commissions to mortgage brokers.
While the Labor Party has outlined that it would ban trail commission from 1 July 2020 (and the Coalition government has said it will defer any action on the abolition of trail until a review in three years’ time), the group is reportedly concerned about the legality of any potential changes that may be announced by the incoming government.
The fund would therefore first review any future policy impacting brokers and assess their implications and consider whether there are any legal implications and grounds for action for brokers before taking legal action, should brokers so wish.
Noting that the broker associations are “working hard to lobby on behalf of mortgage brokers” and currently represent brokers, the Australian National University lecturer added that these representative structures “do not include scheme[s] that can fund legal representation or deal with compensation for losses caused by third parties”.
Ms Mylecharane added that further assistance and protection could therefore be provided to mortgage brokers through the establishment of the fund.
‘Brokers need a heightened level of protection’
Speaking to The Adviser, Ms Mylecharane said: “The fund is necessary because mortgage brokers need a heightened level of protection in this uncertain climate.
“There is a great deal of anxiety surrounding the future of mortgage broker remuneration, including trail commissions. Any policy change will have a flow-on effect to business viability and the livelihoods of individual brokers.”
The former litigator suggested that the legality of commissioner Kenneth Hayne’s recommendations had not been challenged and that any future policy would need to be carefully considered as they could involve some “serious legal questions”.
Talking about the remit of the fund, the ANU lecturer said that the intention was for the fund to be “proactive, rather than reactive” and to take steps to “understand, and challenge if necessary, any policy changes surrounding remuneration, and the operation of mortgage brokers more generally”.
“The fund will offer representation to mortgage brokers more widely in terms of legal disputes moving forward, which may include actions with banks, aggregators or regulators,” she said.
Ms Mylecharane said she became involved with the project because she was “passionate about doing what [she could] do to help protect the livelihoods of individuals” and has a “keen interest in consumer outcomes within the Australian Financial System”.
“It seems clear to me that whilst the banking royal commission’s recommendations were well intended, some recommendations may have been a little short-sighted or ill-informed,” she said.
Expressions of interest are now being sought from active mortgage brokers who may need future legal representation, either individually or as part of a collective class action via www.mortgagebrokerslegalfund.com.au
[Related: Brokers ramp up political engagements following banking royal commission]
