Broking industry groups have welcomed the federal government’s decision to extend the net of offset repayment period and have dismissed criticism of the changes by consumer group CHOICE.
Aggregators have welcomed the government’s decision to extend the net of offset payment period from 90 days to 365 days.
Earlier this week, Treasurer Josh Frydenberg told the 900-strong audience at AFG’s Next conference that the revision would “allow brokers to be more fairly remunerated for the funds that they arrange”.
Aussie Home Loans, the Australian Finance Group (AFG), Connective, Loan Market, and Mortgage Choice have joined the Finance Brokers Association of Australia (FBAA) and the Mortgage & Finance Association of Australia (MFAA) in welcoming the government’s decision.
Aussie Home Loans
Echoing remarks made by MFAA CEO Mike Felton, Aussie’s chief customer officer, David Smith, said the government’s decision is a sign of its commitment to work constructively with industry stakeholders.
“This is a welcome outcome which demonstrates the government’s willingness to work with industry on these reforms to protect consumers while maintaining strong competition in mortgage lending,” he said.
“Aussie appreciates the consultative approach which has been taken by Treasury and are in support of the commission extension period from 90 to 365 days.”
Mr Smith urged the industry to remain focused on proactively reforming the sector to ensure that brokers continue to work in the best interests of customers.
“During this time, it’s important for Aussie and the industry collectively to stay focused on self-regulation in this new legislative environment in order to provide good outcomes for brokers and customers alike,” he added.
Speaking to The Adviser, Mark Hewitt, general manager, industry and partnership development at AFG, said the government was quick to reconsider the 90-day cap during the consultation process and welcomed their receptiveness to industry feedback.
“We at AFG were very closely involved in the consultation along with many other of our fellow aggregators and the industry bodies,” he said.
“As part of the consultation, the regulators were a little bit surprised about the impact that the 90-day requirement would have; they probably didn’t fully appreciate that some loans, especially for renovations, for instance, can take longer than 90 days to settle.
“It was an unintended consequence. [As] soon as they understood the potential negative impact, they were quick to adjust, so congratulations to them for listening.”
He added: “All sectors of industry – whether regulator, government, lender, broker or aggregator – [have] got one thing in mind, and that’s continuing to provide really good customer outcomes and improving along the way.
“The best way to get there is through consultation and ensuring all stakeholders are included.”
Connective director Mark Haron added that the government’s revision would help ensure that brokers are “properly remunerated” for the work they undertake in arranging finance for clients.
“We have also voiced loudly our frustration with the non-standardised application of net offset payments by the various lenders and the 90-day cap,” he said.
“It was clearly unjust, and this development again demonstrates the government’s preparedness to take onboard the views and concerns of our industry and make regulatory decisions that deliver fair and commercially sensible outcomes that still deliver good customer outcomes.”
Sam White, executive chairman of Loan Market Group, told The Adviser that the government’s decision is a “common-sense change that both brokers and lenders have aligned behind”.
Mr White also noted the benefits of the new best interests duty in further strengthening the broker proposition, as acknowledged by Treasurer Frydenberg.
“[We] wholeheartedly agree with the Treasurer that we need to have a duty in place where the broker is acting in the client’s best interests,” he said.
“This will build trust in the services brokers provide to their clients and ultimately provide the public with more confidence to use a mortgage broker.”
The Loan Market head also backed the Treasurer’s call for a principles-based guidance for the best interests duty, which will be administered by the Australian Securities and Investments Commission (ASIC).
“Keeping brokers safe is a core promise we make to our business partners, and we look forward to working with ASIC on the detail in those guidelines, which will give further certainty to brokers on how they can effectively prove they have satisfied their duty,” he said.
Mortgage Choice CEO Susan Mitchell said that while she welcomed the extension to the net of offset payment period, policymakers should ensure that lenders adopt a standardised interpretation of the new guidance.
“We need a solution for the lack of consistency in the way lenders calculate their remuneration policies, which often mean that brokers don’t receive the remuneration they worked for, which I don’t believe is fair,” she said.
“It remains to be seen how lenders will interpret Treasury’s guidance given that there is no definition for how the cap will be implemented.”
CHOICE attacks government’s decision
Consumer group CHOICE has voiced concerns about the extension of the net of offset repayment period.
CHOICE’s policy and campaigns adviser Patrick Veyret claimed that it incentivises poor consumer outcomes.
“Mortgage broking lobbyists have again pressured the government to water down strong protections that ensure brokers don’t recommend more expensive mortgages than people need,” he said.
“A 90-day drawdown is an important safeguard to prevent the broking industry from recommending larger mortgages than people need in order to receive a higher upfront commission.”
However, Connective director Mark Haron rejected this criticism, saying that it was ill-informed.
“What Mr Veyret fails to acknowledge is that the industry and the proposed legislation have introduced utilisation/net of offset upfront commission arrangements to ensure that brokers don’t get paid on loans that are arranged for amounts higher than the customer actually requires at any time during the initial 365 days,” Mr Haron said.
Mr Haron added that Connective would continue to work closely with the federal government to ensure the best interests duty is developed in a manner that “promotes even greater levels of consumer confidence while also being workable for brokers”.
The federal government is expected to table its best interests duty bill in Parliament before the end of the year.