For the third time in under two weeks, the Finance Brokers Association of Australia (FBAA) has called out problematic behaviour it sees being perpetuated within the industry.
The association is publicly pressuring lenders to eliminate ‘clubs’ that favour brokers based on volume – and to do so before Best Interest Duty (BID) comes into effect at the start of next year.
According to FBAA managing director Peter White AM, despite the efforts of the Combined Industry Forum (CIF) and the legislation which has been introduced to combat volume-based incentives, lenders continue to give preferential treatment to brokers who write more loans.
“This disadvantages the clients of other brokers,” said White, who went on to explain that some lenders take significantly longer to process loan applications from brokers they don’t feel write enough business for them.
“By way of a current example from a broker, without volume, it takes nearly an hour on hold for your call to be answered, and up to 30 working days for your application to be picked up. In some cases, this is extending to over 40 days,” White said.
In contrast, applications submitted by brokers meeting volume expectations are typically processed in one to eight days.
As White sees it, this behaviour is not only “unfair” but “immoral”, and could result in subpar outcomes for good quality borrowers even if their broker is acting responsibly and in their best interest.
“With the BID soon to be implemented, how can a broker claim to act in the best interests of a client with this sort of pressure from lenders?”, the association head asked.
But importantly, even without the introduction of BID, the industry could once again face increased scrutiny if this unsavoury practice is allowed to continue.
“We [have] all put a lot of effort into taking the steps necessary to end volume-based broker clubs, and we are better off for it,” said White.
“But the industry’s reputation will take another hit if brokers are again perceived to be favouring certain lenders based on anything other than what is best for the client.”