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FBAA managing director Peter White has hit out at an “ill-informed” campaign by consumer group CHOICE, which has called for an end to commission-based remuneration.
Peter White, managing director of the Finance Brokers Association of Australia (FBAA), has dubbed consumer group CHOICE’s call to end broker commissions as “diametrically opposed” to its objective of producing better outcomes for borrowers.
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CHOICE policy and campaigns adviser Patrick Veyret recently claimed that “commissions in the mortgage broking industry need to be banned” in order to address conflicts of interest raised in the financial services royal commission and pointed to comments made by Commissioner Kenneth Hayne in his interim report.
Commissioner Hayne claimed that value and volume-based commissions in the mortgage industry have been an “important contributor to misconduct and conduct falling short of community standards and expectations and poor customer outcomes”.
The commissioner also suggested that commission-based remuneration in the mortgage industry “might” be in breach of obligations in the National Consumer Credit Protections (NCCP) Act.
Mr Veyret asserted that a “fixed fee for service” and a “tangible, legal obligation” imposed by a “best interests duty”, would be a “solution” to alleged conflicts in the broking industry.
“The current commission structure creates a number of perverse effects, including encouraging borrowers to take a bigger loan than required, and minimising switching,” Mr Veyret said.
“By banning conflicted remuneration and introducing a best interests duty, customers will have peace of mind that the mortgage they’re being sold is truly in their best interest.
“It will make brokers actually live up to their claims that they’ll find you ‘the perfect home loan’.”
In response to CHOICE’s claims, FBAA’s Mr White accused the consumer group of advocating for a position that would “drive more people to banks”, noting that Commissioner Hayne also stated that banks were motivated by “greed - the pursuit of short- term profit at the expense of basic standards of honesty”.
Mr White continued: “Brokers are transparent about their commissions, and they are driven to achieve the best product for the consumer.
“The commissions paid to brokers from lender to lender have a negligible difference, so it’s ridiculous to suggest the existing commission structure works against consumers.”
The FBAA head also referenced the final report of the Australian Competition and Consumer Commission’s (ACCC) mortgage pricing inquiry, which concluded that banks have exhibited “opaque”, profit-driven pricing behaviour.
Mr White concluded: “Informed commentators understand the role that mortgage brokers play in the financial services industry in this country, and they know that consumers get the best deal from a broker who understands their situation and responds accordingly.”
[Related: PC reiterates stance on trial commission]
