Following inquiries from the Banking Royal Commission, the Productivity Commission and several ASIC investigations, it is clear that the broking industry is failing Australian borrowers.
Under the current system, brokers advertise their services by implying that they will assist the customer in getting a good quality loan, based on their individual needs. However, a recent ASIC inquiry found that brokers send almost half (49%) of borrowers straight back to the bank they had an existing relationship with, arguably a result of complacency in the broking industry, largely driven by harmful commission-style remuneration.
The Treasury has proposed to ban volume based and campaign based commissions which arguably lead to poor quality advice. This is a welcome proposal, as it has been argued that such commissions have had the effect of encouraging brokers to recommend loans which maximise their commissions, rather than loans which best suit the need of the specific customer, thereby resulting in poor quality advice.
CCLSWA contributed to the Joint Consumer Submission to the Treasury supporting such reforms that it expects will revive competition in the home loan market.
The key points of the Joint Consumer Submission include:
- We strongly support the principles based obligation for brokers and licensees to both act in the best interests of individuals and prioritise the interests of consumers.
- The Government must significantly strengthen civil penalties for licensees and lenders who break the law.
- There must be clear record keeping obligations for brokers and licensees to ensure compliance with the law. These obligations must be principles-based.
- We welcome the prohibition on campaign-based and volume-based commissions and call for the removal of non-volume based bonuses.
- Clawback provisions need to be amended to encourage switching.
- These protections must be applied to all brokers recommending credit products,including car loans and personal loans.
Jointly, CHOICE, Consumer Credit Law Centre SA, CCLSWA, Consumer Action Law Centre, Financial Counselling Australia, Financial Rights Legal Centre and the Indigenous Consumer Assistance Network have made 15 recommendations to the Treasure on mortgage broker best
interests duty and remuneration reforms. To read these recommendations and the submissions in full, click here.