The CEO of Loan Market has revealed reforms that he hopes will help the broking industry evolve.
Sam White said it had been “disappointing” to see the reputation of the industry take “a beating”, but that the scrutiny was making way for a new phase of change.
Rather than wait for the outcome of the Royal Commission, White has put forward seven steps he hopes to take in order to do better by their customers and increase competition.
The reforms include adjusting upfront commissions, standardising clawbacks and creating more transparency across the sector.
Another reform included taking steps towards “greater professionalism”, which includes the introduction of a ‘bad brokers’ registry list to remove brokers who act outside industry standards or commit fraudulent activity.
In a statement outlining these reforms, White said, “This is the beginning of the next phase of evolution in our industry. Loan Market will not be shying away from the challenge to do better.”
Speaking in Sydney yesterday (23 April), White added, “Our view is that customers are paramount and that’s how we’d like to see it evolve. It’s been difficult to listen to what’s happened. Particularly given the work that ASIC did and the work that they went to.
“We can’t sit back and wait for the royal commission. This is a chance for us to evolve. There’ll be this ‘well we shouldn’t have to do that’, but our view is that if you don’t, we’re going to have it done to us. I think the future’s in our hands. If we choose not to act we’re going to get what we deserve. I think the status quo is no longer good enough.
“What we’re doing is putting these plans in place regardless of what the industry says.”
Many of the reforms are in line with the outcomes proposed in the Combined Industry Forum (CIF), of which Loan Market is a stakeholder.
Overview of the suggested reforms:
1. Adjustments to upfront commissions
White believes introducing paid-fee-for-service will weaken competition and lead to poor customer outcomes. He suggests that payments are based on funds actually used by the customer, there should be an industry standard upfront commission percentage across all lender products, and bonus commissions should be banned.
2. Trail commissions standards
Trail commissions are important for ongoing customer service. Industry bodies, regulators and licensees should work together to set standards for regular client reviews to ensure customers can receive ongoing service from their broker for no additional cost.
3. Standardise “clawbacks”
Clawbacks encourage brokers to put a customer into the right loan or be negatively impacted in the short term by having the commission “clawed back”. There are different approaches by lenders to how clawbacks are calculated, so there should be a clear industry standard.
4. Standards on income and expenditure assessment
There will be a higher expectation on how brokers verify borrowers’ financial situations and household expenses. Regulators, lenders and broker groups should set a common standard for assessment and presentation of income and expenditure details, which must be communicated from the broker to the lender.
5. Greater professionalism
The removal of soft dollar benefits to individual brokers by lenders. Ongoing lender sponsorships of broker professional events should not be based on volume, it should be industry standard and accepted. The introduction of a ‘bad brokers’ registry list to remove brokers who act outside industry standards or commit fraudulent activity immediately from the industry: this would be managed by the industry body.
6. Sector transparency
There needs to be greater disclosure by brokers and aggregators of their ownership structure. This applies particularly to Mortgage Brokers owned partly or fully by a bank.
7. Broker obligations
There needs to be greater clarity around broker obligations, as stated in the National Consumer Credit Protection Act (NCCP). White believes the existing standard of “not unsuitable” is the wrong way to describe a broker’s obligations.