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CHOICE has entered the mortgage broking arena with a new campaign that strives to help borrowers find a cheaper mortgage rate. But will it work, or is it a crack pot scheme that will fail at the first hurdle – NCCP?
LAST MONTH, consumer advocacy group CHOICE shocked the third party distribution channel when it announced it would enter into mortgage broking.
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The self proclaimed “people’s watchdog” joined brokerage One Big Switch to launch a new campaign, commonly referred to as the Big Bank Switch, that encourages home buyers to find a better deal on their mortgage.
Those with a mortgage were asked to leave their details on a website being run by CHOICE.
One Big Switch said if more than 1,000 home buyers registered their interest they would be able to use the mass bargaining power to negotiate interest rate deals directly with lenders.
Two weeks later, more than 40,000 people had registered their interest.
Founder and director of One Big Switch Lachlan Harris told The Adviser he was overwhelmed by the initial response.
“We want to talk to every lender and see if we can’t champion for better mortgage rates,” he said.
Mr Harris said the company, which holds its own Australian Credit Licence, was a business that was looking to make a profit from any switching deal.
“We will receive commissions and we will pay CHOICE a referral fee for their part in the campaign,” Mr Harris said.
But while CHOICE said the referral fee would help “cover the costs of creating and delivering the campaign”, MFAA’s chief executive officer Phil Naylor said the commission paid to CHOICE would jeopardise the reputation of the company.
“CHOICE has always set its stall out on its independence, but now they are getting involved in the commercial market,” Mr Naylor said.
The referral arrangement with One Big Switch has also managed to raise an eyebrow or two amongst brokers.
After all, it wasn’t long ago that CHOICE urged borrowers to avoid brokers altogether.
In October 2008 CHOICE concluded that borrowers could save between $18,000 and $46,000 over the life of their loans by not visiting a mortgage broker.
But this aside, brokers are also understandably concerned that this new campaign could actually cost them customers and ongoing trail payments.
And let’s not forget the issue of compliance.
Since the beginning of this year, brokers have had to abide by the rules and regulations set out under the National Consumer Credit Protection Act.
“Under NCCP regulations it is a requirement that any borrower or potential borrower be assessed as having a loan that is “not unsuitable”. Who is to assess this?,” Alpha Lending’s Darren Brits said.
“If CHOICE does not abide by the NCCP, they should feel the full force of ASIC.”
And feel the full force they have. In the last week of August, ASIC announced it would launch an inquiry into the Big Bank Switch campaign to see if it was meeting the necessary requirements under NCCP.
While the investigation continues, the question must be asked: what is One Big Switch and CHOICE trying to gain out of this highly publicised campaign?
A source from one of Australia’s preeminent non-bank lenders told The Adviser, that they had conducted “cursory conversations” with Lachlan Harris and One Big Switch with little success.
According to the source, Mr Harris is asking lenders to offer the 40,000 registered mortgagees a cheaper rate than their current market rate.
But if no lenders slash their market rates, what has been achieved?
It has also started a precedent. If this works out, what is to stop other brokerages such as Aussie or Yellow Brick Road from coming along and doing the exact same thing in five years time?
Absolutely nothing.
So, is this whole “championing the banks’ campaign another phase in the evolution of mortgage broking or is it a crack pot scheme devised by one man who doesn’t understand the industry at all?
Pure genius or pure stupidity? It will be interesting to see what transpires.
