Broker clients not better off, say consumer groups

by Miklos Bolza31 Aug 2017
Mortgage brokers don’t always obtain better priced loans for clients than the banks and they don’t always offer a diverse range of loan options, according to a joint submission from four consumer groups to Treasury.

While the submission, written by CHOICE, Consumer Action, Financial Counselling Australia and Financial Rights Legal Centre, released on Tuesday (29 August), centred on the Australian Securities & Investments Commission's (ASIC) Review of Mortgage Broker Remuneration, it also made a number of suggestions outside of the six proposals initially presented by ASIC.

One key call to action involved increasing standards in the industry, with consumer groups saying that some clients fail to receive the service they expect when visiting a broker.

“Advertisements for brokers claim that they will find customers the right loan, provide tailored advice or get a great loan for the client. However, their actual obligation to clients is quite low – brokers are only required to provide credit assistance that is ‘not unsuitable’ for the consumer.”

The groups called on standards to be lifted, pointing to findings in the original ASIC report which showed that:
  • The difference in interest rates between proprietary and third party channels is small with the direct channel being cheaper in some cases
  • Individual broker businesses send 80% of their loans to four ‘preferred’ lenders with these lenders being different across brokerages
“Given the trust consumers place in brokers, they should all be held to a higher standard than arranging a ‘not unsuitable’ loan for their customers. They should be required to act in the best interests of their customers,” the groups wrote.

The National Consumer Credit Protection (NCCP) Act should more clearly define what a mortgage broker is and detail any new obligations that a broker should meet, they added.

Scrapping commissions

The groups also called for both upfront and trail commissions to be removed to “best serve consumer interests”. The current remuneration structure creates two types of conflicts, they said, with brokers possibly either recommending loans too large for a consumer or recommending one loan over another due to its higher commission.

“Based on cases that financial counsellors and community legal centres see, it appears that some mortgage brokers are so motivated by commissions that they put customers at significant risk and take extreme steps, including likely document fraud and breaches of the responsible lending obligations under the [NCCP Act],” they said.

The groups recommended that upfront commissions be replaced with a fixed fee for advice model (either through a lump sum or hourly rates) while trail be scrapped entirely.

“For consumers, there is some implication that trail accounts for service delivered by the broker over the life of a loan. It is incredibly unclear what service is being delivered,” they said.

Related stories:

Consumer group reports “contradictory”

ASIC to shine spotlight on broker fraud

Flat fee model will hammer consumers, says industry association

COMMENTS

  • by BB 31/08/2017 8:46:27 AM

    Choice cannot define what good customer outcomes are and even if they could, they would discover that best rate does not lead to best outcome. There are many other factors at play. These morons are running a dangerous agenda. I think ASIC though, are smart enough to realise that these submissions from the consumer groups are not worth the paper they are written on.

  • by Brado 31/08/2017 8:47:43 AM

    I do agree that many brokers use a preferred lender, rather than the best loan they can for the client at the time. we all know that scrapping commissions is the mantra of the big banks, as they will not reduce loan interest rates, and make more profit. it will also drive more clients to go direct, and decimate the lenders that only have brokers for distribution...

  • by 31/08/2017 9:08:03 AM

    http://www.afr.com/technology/choice-risks-the-big-bank-switchoff-20110824-i4a9i Choice are conflicted and their above comments are totally rubbish. What evidence do they have? A client walks into a branch and gets a 70 point discount. They come to me and get a 130 point discount. And they are worse off going to a broker who provides them access to 50 odd lenders rather than 1. These idiots need to be called out for what they are, i am sick of them rubbishing our industry.