The mortgage broker associations have come out to defend the industry after a Senate committee was urged to review broker remuneration and the quality of credit advice.
The recommendation was submitted to the Senate economics references committee’s inquiry into the financial regulatory framework and home ownership via a combined submission from consumer organisations (including CHOICE, Consumer Policy Research Centre, Mortgage Stress Victoria, and Consumer Action Law Centre, among others).
While the bodies note that a best interests duty was introduced for brokers following the banking royal commission (and came into force on 1 January 2021), they say that “it has not been substantially tested by the regulator”.
In the submission, the consumer groups say that, in order to “confirm if mortgage broker market protections are working, ASIC should be directed to undertake new research into mortgage broker remuneration and the quality of recommendations by brokers”.
The submission says: “We have no sense of how many brokers are complying with the best interest[s] duty. Crucially, we do not know how many brokers are recommending good quality loans from a variety of lenders to their customers.
“With mortgage brokers now arranging most loans in the home lending market, regulators need to test if legal protections are working and if brokers are helping or harming competition in the market in 2024.”
The groups also suggest that the committee recommend new laws to formalise the recommendations of the 2017 Retail Banking Remuneration Review, including that retail banking staff are not paid directly or solely on sales performance.
The Finance Brokers Association of Australasia (FBAA) and the Mortgage & Finance Association of Australia (MFAA) both opposed the calls, saying that there were no grounds for a broker remuneration review given there is “no systemic harm linked to brokers” and “complaints against brokers are minuscule”.
Speaking to The Adviser, Peter White AM, the managing director of the FBAA, says: “Finance and mortgage broker remuneration has undergone more reviews than are found on Google and, without exception, the current structure has been found to be the best and fairest to both brokers and consumers – remembering, of course, that mortgage brokers must, and do, abide by best interests duty.
“This is accepted by both sides of politics and no one is questioning this except those groups who clearly don’t understand how the finance sector actually works.
“It is also important to note that complaints against brokers are minuscule (albeit, any that are made are taken very seriously).”
Anja Pannek, the CEO of the MFAA, tells The Adviser: “While these comments from consumer groups were made in response to the Bragg Inquiry on the broader financial regulatory framework, it’s important to recognise that the mortgage broking industry is delivering strong customer outcomes. This is evidenced by the low level of AFCA complaints and (according to consumer group, Financial Counselling Australia) minimal National Debt Helpline calls relating to brokers.
“There’s no systemic harm linked to brokers; in fact, they’ve helped clients navigate some of the toughest economic conditions we have seen for some time. No doubt many of these borrowers are in a better position as a result of the relationship they have with their broker.”
The MFAA CEO also tells The Adviser that the swathe of regulations introduced onto brokers following the banking royal commission – including the best interests duty, the conflict priority rule, prohibiting clawback costs to consumers, and banning volume-based benefits – were “working well”.
“Growth in broker market share and the continued low level of complaints are key indicators of success that mortgage brokers are living and breathing their regulatory obligations,” Pannek says.
“We acknowledge and respect the views of consumer advocates, and we remain committed to working with them to ensure consumer protection remains a core focus. The MFAA and consumer advocacy bodies share a common goal: a regulatory framework that keeps consumer interests at the forefront.”
Banker bonuses should be looked at: FBAA
While the two mortgage broker associations pushed back against the broker recommendations, the FBAA MD says that the consumer groups also flagged concerns with bank bonuses for home loan sales. He tells The Adviser that the FBAA was likewise “concerned that some banks want to return to the practices of the bad old days”.
White says: “Recently, some banks have reinstated increased bonuses for their bankers, which is contrary to the recommendations of the Sedgwick report and the Hayne Royal Commission. They are again incentivising the risk of bad behaviour by bank staff.
“We know some bankers try and steal business generated by brokers through unethical practices and now the banks have again endorsed this possibility of this practice. This is often not in the best interests of the borrower and these practices should not be allowed.
“Let’s be honest – the banks would love to return to the days where there was far less competition, but the world has moved on and Australian consumers will never stand for that.
“If it wasn’t for brokers, consumers wouldn’t have access to such a wide range of lenders, many people would not even secure a loan, and less competition would mean higher rates and costs for borrowers.”
The defence of industry seemed to have done its job; there was no questioning about the need for such a broker remuneration review at the hearings for the Senate inquiry. Instead, the focus was on buffers and lending laws (see page 26 for more).
