The mortgage broking industry is long overdue for reform.
Landmark inquiries from the Banking Royal Commission and the Productivity Commission, as well as a number of ASIC investigations, have all found that the broking industry is failing Australians. The Treasury’s proposed reforms are an important step forward in reforming this troubled sector.
Buying a mortgage is likely the biggest financial decision a person will make in their lifetime. People trust that brokers truly act in the borrower’s best interests, not their own. However, the broking industry is not delivering for people. Brokers are not finding people cheaper priced loans. They are selling people into riskier loans that are more likely to fall into arrears and take longer to pay back. They are providing limited loan options and are regularly sending people straight back to a bank they have an existing relationship with.
The impact of mortgage brokers recommending unaffordable or harmful mortgages is devastating for people. What’s more, there are countless other Australians who are struggling, having been unwittingly sold into a mortgage by a broker that is not in their best interests.
In our joint submission with CHOICE, Consumer Credit Law Centre (SA), Consumer Credit Legal Service (WA), Financial Counselling Australia, Financial Rights Legal Centre and the Indigenous Consumer Assistance Network, we welcome the Treasury’s proposal to ban harmful campaign-based and volume-based commissions. These commissions lead to conflicted advice and encourage brokers to recommend loans to people that maximise their commission. We urge the Treasury to also ban non-volume based bonuses and amend the clawback requirements to promote switching.
The submission also comments on:
- We strongly support the principles-based obligation for brokers and licensees to both act in the best interests of individuals and prioritise the interests of consumers.
- The Government must significantly strengthen civil penalties for licensees and lenders who break the law.
- There must be clear record keeping obligations for brokers and licensees to ensure compliance with the law. These obligations must be principles-based.
- We welcome the prohibition on campaign-based and volume-based commissions and call for the removal of non-volume-based bonuses.
- Clawback provisions need to be amended to encourage switching.
- These protections must be applied to all brokers recommending credit products, including car loans and personal loans.