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The Mortgage and Finance Association of Australia has released a strongly worded statement calling out the potential consequences of the banks using brokers as a “shield” against their own systemic issues.
In a statement released on Monday (9 April), the MFAA retaliated against statements made by the lenders at the ongoing Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and the Productivity Commission’s inquiry into competition in the Australian financial system, among other occasions.
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The association warned that there is “a risk that the big banks are using brokers as a shield to divert attention away from allegations of their systemic issues, stifling of competition and massive community trust deficit”.
The association outlined that, “if this is the case and it proves successful for the big banks”, it would result in three “particularly bad outcomes for Australian consumers”.
The statement reads: “Firstly, it would relieve the banks of the obligation to make the necessary cultural and behavioural changes to restore community trust.
“Secondly, and more importantly, it would hand them an unassailable stranglehold on the home lending market and interest rates.
“Thirdly, customers would be forced to pay for the banks’ acquisition costs, while the banks will receive the economic value on more than half of all home loans currently written by brokers, at little or no cost.”
The MFAA specifically called out Westpac for its suggestion that further consideration be given to shifting broker remuneration to a consumer-based fee for service, which it argues “appear[s] to be entirely self-serving”.
The association said: “This is not a viable solution to improve transparency around broker commissions, fees and costs to help consumers to make more informed choices.
“It will simply tip the balance back in favour of branch-based lending by making it significantly more expensive for a customer to use a broker rather than a bank branch to get a home loan.”
The association added that smaller lenders who do not have branch networks “will be pushed out of the market, reducing competition and allowing the big banks to restore the massive net margins they had on mortgage products before broking gave consumers access to competitive financial services”.
The MFAA said that it understood that “scrutiny is the new norm for the industry” but was “concerned about how ill-informed it is, especially when it comes to the potential motives of the big banks that are most likely to gain from it”.
The statement elaborated: “What is not being acknowledged in the discussion is that a consumer fee-for-service remuneration model has been considered and ruled out by:
- the Combined Industry Forum (CIF), of which Westpac and the other large banks are members;
- ASIC, in its extensive review of mortgage broker remuneration; and
- the Australian Bankers’ Association, both via the independent Retail Banking Review and in its submission on the Productivity Commission’s draft report into competition in the financial services sector.”
Noting that the CIF has previously provided “strong criticism of a consumer fee for service”, the MFAA added: “While a consumer fee-for-service model would harm customers (especially in rural and regional Australia), reduce competition and hurt broker small businesses, it would significantly benefit the big banks, providing them with an unassailable stranglehold on the home lending market and interest rates.
“Let’s be clear: brokers deliver enormous economic value to the banks, and now some big banks want customers to pay for it. This is like asking a home buyer to pay the auctioneer and vendor’s selling costs.
“More concerning is the fact that such a remuneration model would significantly impact competition in the home lending market.”
Highlighting that the CIF has acknowledged that a consumer-based fee for service would “…put brokers at a significant disadvantage to the lender branch channel (which does not charge direct fees), likely result in rationalisation of broker numbers, increasing barriers to entry for new lenders, [and will] disadvantage smaller lenders and those without a branch footprint”, the MFAA concluded: “The competition brought to the mortgage lending market by brokers has reduced the average net interest margins of the big four banks on mortgage lending products and substantially increased innovation.
“If a consumer-based fee for service is introduced, customers will not just face new broker charges but higher interest rates as the big four banks would then be permitted to restore their lost interest margins.
The statement concludes: “It is therefore not surprising that a large bank would advocate for a consumer-based fee for service — clearly it would be very good for their profitability and their shareholders. However, it would be a very poor outcome for competition and Australian consumers.”
