MFAA blasts consumer groups for commission calls

by Miklos Bolza13 Jul 2017
A joint submission by consumer advocacy groups to the ASIC broker remuneration review has been panned by the Mortgage & Finance Association of Australia (MFAA) as “ill-informed” and “detrimental”.

The submission, written jointly by CHOICE, Consumer Action, Financial Counselling Australia and Financial Rights Legal Centre, was delivered to the Treasury on Tuesday (11 July).

The groups recommended a complete overhaul of the current broker commission structure saying that “at minimum, commission payments must be restructured so that payments are not linked to the amount a customer borrows”.

They also suggested removing upfront commissions and replacing them with fixed fees for advice, either in the form of a lump sum payment or as a rate based on the hours of work required, while advising that trail commissions be scrapped entirely.

MFAA CEO Mike Felton said that these proposals would significantly harm the interests of consumers and did not reflect the concerns raised by the Australian Securities and Investments Commission (ASIC) in its initial report.

“ASIC understands that brokers drive competition and provide a critical service to consumers that combines choice, expertise and convenience, to help them make informed choices and get the most appropriate deal. This was supported by comments made by ASIC chairman Greg Medcraft after the report’s release, in which he said that brokers deliver great consumer outcomes,” Felton said.

While a fee-for-service model may suit lenders, it will drive a large proportion of brokers out of the industry, he said. The removal of so many brokers would severely reduce competition in the industry – a situation which Felton said the MFAA was trying to avoid.

“Consumers have voted with their feet over the past 20 years, and mortgage brokers now write more than 53% of all mortgages in Australia. The industry grew by 4% in 2016, and 92% of consumers reported they were ‘satisfied’ or ‘very satisfied’ with their broker’s performance, according to a 2015 Ernst & Young study,” he said.
 
“I do not see how removing brokers from the industry, and consolidating power back in the hands of banks, serves the needs of consumers.”

The MFAA was concerned about providing access to finance by Australians who live in rural or regional areas, Felton said.

“Brokers provide regional Australians the same access to finance as people who live in inner Sydney or Melbourne and it is critical that we should avoid doing anything to negatively impact that.”

Felton also highlighted that the ASIC report never recommended removing the link between loan size and commission, nor did it propose bringing in a flat fee-for-service model.

“A single, lender-funded, fee-for-service would lead to a standardisation of all fees, which we believe ASIC itself does not support and we believe would also be considered anti-competitive by the ACCC,” he said.
 
“All our commissions are fully disclosed, and the MFAA works very hard to ensure that brokers are transparent about how and why they are paid by lenders. We will continue to work with ASIC and Treasury and the Combined Industry Forum made up of a broad range of key industry stakeholders to seek the best possible outcomes for consumers.”

Related stories:

The ASIC rem review: What happens next?

Felton talks ASIC broker review

Industry forum recognises crucial broker role

COMMENTS

  • by MattClark 13/07/2017 9:08:54 AM

    Why would anyone listen to CHOICE on this matter??? They disgracefully promoted the One Big Switch campaign with no understanding of the client's personal circumstances, took the tick and flick referral route to pocket some commission and now they voice an unqualified opinion of commissions? They have no integrity and no understanding of what is involved. Disgrace.

  • by Ken 13/07/2017 9:11:35 AM

    Well done MFAA for the rapid response to the submission that seems to based on a distinct lack of knowledge of the industry.

    These reports do nothing to assist the consumer and seem to be written to "muddy" the waters and create confusion for borrowers, who over time have voted in significant numbers to say that "brokers" give a better outcome than direct channel processes.

    With brokers borrowers have a choice, without them they do not.
    With brokers the industry is having to compete for business, without them it has less incentive to do so
    With brokers borrowers are assisted through the lending process, without them there is less assistance

    how can this be a detrimental outcome?

  • by Reality 13/07/2017 9:33:33 AM

    Choice should have to declare if they have been put up to this by certain other groups.
    Basically they are asking to shut down the broking industry, as their proposal would be put all brokers out of business, and create massive unemployment given the number of brokers in Australia.
    Feels like a banks ambit claim through a third party; given no organisation could be that out of touch with the reality of the industry they are commenting on.