Consumer advocate CHOICE has welcomed draft laws to reform the mortgage broking industry by introducing a duty for brokers to act in their clients’ best interests but called for the government to remove loopholes that would harm consumers.
CHOICE says that if done well, this reform will unleash greater price competition in the home loan market.
“The evidence is clear. 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. A best interests duty will be a loud wake-up call for the problem-plagued mortgage broking industry,” says CHOICE CEO Alan Kirkland.
“The broking industry offers the illusion of competition. It remains the industry’s worst held secret that big banks have swallowed up almost the entire broking industry. Nearly 70% of loans arranged by brokers are from aggregators owned by the big banks. It should come as no surprise that broking businesses regularly send loans straight back to the bank that owns them.”
CHOICE says that brokers commonly recommend more than just mortgages, and that the new legal best interests duty must apply to all financial products and services that brokers recommend.
CHOICE has also called for much stronger civil penalties for lenders and licensees who break the law.
CHOICE has made a submission to Treasury about the draft legislation with other consumer advocates. Key points of the joint consumer submission:
- Strong support for 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.
- Support for the prohibition on campaign-based and volume-based commissions and we call for the removal of non-volume based bonuses.
- Clawback provisions need to be amended to encourage switching.
- The best interests duty must apply to all brokers recommending credit products, including those recommending car loans and personal loans.
The consumer advocate has released a guide for finding a good mortgage broker (CHOICE.com.au/FindAGoodBroker) and is warning people of the risks of poor sales practices within the industry.
CHOICE media release. Media contact: Jonathan Brown, 0430 172 669, email@example.com