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Revenue earned by aggregators and mortgage managers on white label home loan products may be deemed “conflicted remuneration” under the government’s best interests duty bill, NAB has warned.
In its submission to Treasury, released following the publication of the draft best interests duty bill, NAB has warned that section 28VB of the bill could prohibit the payment and receipt of monetary benefit from white label home loans settled through third parties.
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Section 28VB – which was not updated in the National Consumer Credit Protection Amendment (Mortgage Brokers) Bill 2019 – states that monetary benefit would not be conflicted remuneration if:
- an amount of credit is, or is to be, provided to a consumer under a credit contract; and
- the credit is provided, or intended to be provided, wholly or predominantly for the purpose of purchasing residential property, or refinancing credit that has been provided wholly or predominantly for the purpose of purchasing residential property.
However, in its submission, NAB stated: “It is unclear whether circumstances under which an aggregator or mortgage manager retains profit from a white label product is considered ‘conflicted remuneration’ under regulation 28VB.”
NAB noted that under existing arrangements, wholesale lenders pay the aggregator a royalty for white label loans settled by its broker network, while mortgage managers earn the interest rate differential between cost of funds from the wholesale funder and the consumer rate.
“These income amounts represent consideration for the aggregator or mortgage manager providing services in marketing, distributing, packaging and, for mortgage managers, providing ongoing services to customers during the loan term,” the major bank added.
As a result, the bank has stated that such arrangements should be exempt from the proposed regulations, given that aggregators and mortgage managers “do not deal directly with end-consumers”.
“Regulatory guidance should provide that intermediary profits derived from this form of commercial arrangement should not be considered as conflicted, given that intermediaries do not deal directly with consumers and do not make product recommendations to consumers,” NAB submitted.
The phrasing of s28VB of the bill is among several issues flagged by the industry in the government’s best interests duty bill, including the proposed definition of a mortgage broker and the provisions surrounding clawbacks.
More guidance around how the best interests duty applies in practice is expected to be released by ASIC before the end of the year, which stakeholders have said would be “almost as crucial as what’s in the legislation”.
