New mortgage broker bill could destablise industry
As ASIC begins its four-week consultation on the Best Interests Duty Bill for mortgage brokers, some mortgage brokers believe that the draft legislation could destabilise the broker market.
Zippy financial director and principal broker, Louisa Sanghera said the legislation which recenlty passed - and comes into effect on July 1 - seemed to protect a viewpoint that benefits big banks but has the potential to financially devastate brokers.
The Bill was legislated by the government in response to the Banking Royal Commission and will require mortgage brokers to act in the best interests of consumers and to prioritise a client’s interests when providing credit assistance.
According to Sanghera, under the Best Interests Duty Bill brokers would be left out of pocket when clients opted to change lenders within the first two years of taking out their loans because of the ability to retrieve money already paid out, also known as clawbacks.
“The issue that I picked up with the bill is that basically stating that clawback is going to be a maximum of two-year period for the banks.
“Most of them want 100 per cent clawback in a 12-month period, then it drops down to 50 per cent clawback to the brokers. That's been working for years.”
Sanghera understands clawback was originally introduced to stop brokers from conducting excessive trading of a client’s mortgage, or ‘churning’, however Sanghera believes the new bill undermines brokers efforts in the long run.
“I just don't think is a fair system because as brokers, we're doing all the work for the client in their best interest.
“We’re placing the business with the bank and we’re getting paid by the banks, but if that client in 11 months decides to move their mortgage elsewhere, we have to repay all the commission and we’re actually making a loss.”
“Everybody needs to do the right thing by the consumer, but it shouldn't be a downfall at the mortgage broking industry.”
Sanghera argued most brokers work for small businesses and will be “financially penalised” for decisions that brokers have no control over.
Continuing, Sanghera added brokers often lost thousands of dollars from clawbacks, which made growing their small businesses difficult because of profit uncertainty.
“Why does the government seem to think this is appropriate?” posed Sanghera.
Sanghera said that technology would make it simple for banks to identify brokers who were churning clients, however, the clawback policy penalised everyone.
“I just can’t understand why the industry allows all brokers to have to pay back the money they have earned if the client does the wrong thing by the broker and, ultimately, the lender?”
“Clawbacks were introduced prior to the royal commission and have always been bad policy in my opinion,” she said.
“Now it is set to become law with the only beneficiaries being big banks in my opinion.
“Brokers are generally small businesses and it is completely unfair that we are seemingly expected to work for free.”
Speaking on the corporate regulator's own guidance, ASIC commissioner Sean Hughes said the new obligations will ultimately support the best interests of the borrowers.
Hughes added ASIC released this draft guidance for consultation as early as possible, to help promote certainty for mortgage brokers as industry prepares for the new obligations to commence in July.
“Consumers should feel confident that their broker is offering the best loan for their circumstances and we expect that consumer outcomes will improve as a result of this reform.”
Sanghera said she hopes ASIC will take all sides into account during their consultation.
“Everybody needs to do the right thing by the consumer, but it shouldn't be a downfall at the mortgage broking industry,” Sanghera said.