Association heads call for POS conflict resolution

Previously, the duty was only legislated to cover mortgage brokers, as per the recommendation of the royal commission. However, the new proposals would see finance brokers writing consumer finance (such as car loans) under the obligation, too.

On Monday (30 November), several players in the asset finance arena warned that the extension of the BID to all brokers writing consumer finance could damage their business and put them at a competitive disadvantage to car dealers.

These concerns largely focus on the fact that car dealers can hold a linked credit providers agreement – which enables them to arrange finance for the customer at the point of sale – but without being held to any licensing, responsible lending obligations or relevant disclosures.

While the broking industry has long called for a review into the suitability of POS (starting from its “temporary” introduction in 2010), these calls have reignited, given that the proposed extension of the BID could augment the uneven playing field between brokers and car dealers operating under POS.

FBAA response

Speaking to The Adviser, the managing director of the Finance Brokers Association of Australia (FBAA), Peter White, commented: “The legal technicality is within the link credit providers agreement, the POS exemption means they don’t have to disclose everything like a broker would.

“When you work out of the POS exemptions as a motor vehicle dealer, you’re actually sitting under a linked credit providers agreement, so they’re almost acting like an agent of the lender. They will be exempt from the extension of the BID; Treasury has made that very clear that it’s a carve-out, as it is for mortgage managers.

“We don’t necessarily agree with that [exemption] and we have made that position known to the Treasury.”

Mr White added that the FBAA did support having an even playing field so that consumers would know that they were covered by the best interests duty whenever a broker is writing a mortgage for them.

However, he added that it didn't agree with “where government landed in how they implemented the recommendations of the financial services [royal] commission, because it was never meant to extend to anything past home loans”.

“You can't just apply the RG 273 guidance to finance brokers, because they don’t run the same structures,” Mr White told The Adviser.

He added that the number of people who could be held to the extended BID would be sizeable, and they would have only three months to prepare for it – and that included the Christmas holidays.

“So, we object to all of this and think it needs to be framed differently,” he said, reiterating that it should have been focused on mortgages rather than opening up to consumer credit more broadly.

However, he suggested that the two-week consultation period made it seem unlikely that the Treasury was expecting to change the proposal. He therefore concluded that should the government decide not to reverse this decision, the FBAA has urged them to consider “an extension to the extension” before it starts on 1 March, of “at least six months”.

He concluded: “We hope that the implementation of the extension of BID will get pushed out by at least six months, but 12 months is on the wish list. Or, at least, 12 months’ grace period where there will be no penalties imposed by ASIC for any unintentional breaches, like we did with the NCCP in 2010,” he said.

MFAA response

The CEO of the Mortgage & Finance Association of Australia (MFAA), Mike Felton, outlined the reasoning for the move, but also called for a more even playing field between brokers and car dealers.

He said: “The extension of the best interests duty to finance brokers effective 1 March 2021 is necessitated by the proposed removal of a number of key responsible lending clauses relating to credit assistance providers, which could have left a gap in the legislation. 

“It also ensures that there is a level playing field in all credit assistance provided by brokers to consumers, regardless of the type of consumer credit the broker is assisting with. This will align the law with customer expectations when dealing with a broker and also assist to remove any confusion a consumer may have as to whether or not BID applies.

“The extension of BID to finance brokers is, however, likely to unfairly disadvantage finance brokers competing with car dealers providing finance under a point of sale exemption,” he said.

Mr Felton told The Adviser that it was the MFAA’s understanding from its discussions with regulators that where a broker has access to a “dial-down” commission structure (for example, in relation to consumer car finance) that the broker is unlikely to meet their best interests duty unless their commission is fully dialled down to minimise total cost to the consumer. 

“However, those operating under a POS exemption can continue to use such dial-down structures unless changes are made,” Mr Felton said.

“In our view, consumers need protection from POS intermediaries and particularly in circumstances where the POS salesperson can access and charge consumers a higher rate. 

“In order to achieve this competitive neutrality with finance brokers, we believe that dial-down structures should not be permitted for use by POS salespersons and that the POS exemption should be abolished to provide better consumer protections and allow finance brokers to compete on more equal terms,” he said.

Mr Felton said that if the POS exemption is not removed, then POS salespersons should be obliged to “prominently state that they represent lenders and not the customer, and they should be required to disclose exactly what commissions and benefits they receive”. 

[Related: Asset finance brokers raise alarm over BID extension]