The opposition government has confirmed it will implement 75 of the 76 recommendations made by Commissioner Hayne, backing away from some of Hayne's proposed changes to broker remuneration.
In a statement released on Friday, the party said, “Labor will abolish trail commissions from lenders to mortgage brokers and aggregators on new loans from 1 July 2020 as well as banning volume-based commissions and ‘soft dollar’ payments being offered to brokers by lenders."
To address conflicts of interest and incentives that drive higher average loans sizes, Labor will impose a fixed percentage upfront fee for brokers. Upfront commission can only apply to the amount drawn down by the borrower, not the total loan amount.
“Labor’s position is crystal clear – we will implement 75 recommendations in full. The single remaining recommendation 1.3, will be implemented in a manner that will achieve the objectives set out by Commissioner Hayne.”
Responding to the comments, MFAA CEO Mike Felton said, “The MFAA welcomes the announcement that under a Labor Government, upfront commissions will be retained at a level which ensures mortgage broker viability, protecting competition, choice and access to credit.”
However, Felton highlighted that Labor’s proposed 1.1% upfront payment will not be enough to sustain aggregation or broker group services, meaning lender payments will need to increase, whilst maintaining the 1.1% commission payment to brokers.
Felton added, “We do not believe that the case for the removal of trail commissions has been made and will continue to argue for trail to be retained, however given that the Productivity Commission, the royal commission, the government and now the opposition have called for trail to be removed, our priority has to be on protecting the viability of the mortgage broking industry.”
The developments follow extensive campaigns from the broking industry’s associations as well as aggregators, second tier and non-bank lenders, and brokers themselves.
In the weeks since February 4, the MFAA’s online petition has generated more than 68,000 signatures, while an independent petition by broker Rob McFadden has generated more than 78,000.
However, some brokers have raised questions about Labor’s proposed 1.1% payment.
“This is not a celebration. 1.1% is equivalent to a loan lasting three years on a trail book. That’s a very high run off rate. The only acceptable and reasonable outcome is to leave the current model as it is. Government has no place interfering with the free market,” said Paul Lewis of Lighthouse Financial Services.
The party has already drafted bills to enact five of the recommendations and says these could be law before the election “if Scott Morrison ends his protection racket for the big banks and agrees to extra sitting weeks in March.”
It will also establish a “groundbreaking” victim compensation package.
The party’s statement continued, “We must ensure that these victims aren’t left behind as we clean up the sector after a decade of misconduct. Under Labor’s plan, more victims will have the opportunity to pursue a just outcome, and all consumers will benefit from quadrupled AFCA compensation caps going forward.”