While both aggregators have generally welcomed ASIC's Review of mortgage broker remuneration, and applauded the regulator’s recognition of the value of brokers, they have both voiced some concerns with the report findings.
AFG’s interim CEO David Bailey has commented: “The presence of the mortgage broking industry is one of the few factors preventing the further entrenchment of the vertically-integrated banking sector.
“AFG is looking forward to working with the regulators on the detail around this report. We believe significant work remains to be done to fully explore some of the issues raised and our main focus will be to ensure mortgage brokers in this country are able to continue to deliver a service that benefits consumers and enhances competition.”
Mr Bailey said it was “important” for ASIC, government and all stakeholders to work together to refine the direction of the proposals, adding that it is “essential” that a “rational evaluation” of the results of the review and development of proposals do not result in an outcome that hands more economic power to the already dominant big banks.
“The interests of the country’s smaller lenders, the tens of thousands of small business operators out there working as mortgage brokers and most importantly the one in two Australian home buyers choosing to do business with us, must not be forgotten,” said Mr Bailey.
Although AFG has not gone into detail regarding which issues in particular it would like to “fully explore”, Connective told brokers on Wednesday via webinar that it “takes issue” with how the findings may have been drawn, based on the data provided.
Monique Hope-Pearson, Connective’s group legal counsel, told brokers: “While the report is fairly benign and gentle and friendly in its approach… there are some inferences and things drawn in the report which we do take issue with and that we will be speaking to the regulator about very seriously.”
Notably, the group legal counsel highlighted some of the terminology used by ASIC in the report. For example, the report states that a broker “could be incentivised to recommend a loan from a particular lender because the broker will receive a higher commission, even though that loan may not be the best loan for the consumer”.
Ms Hope-Pearson said: “ASIC refer to this new concept of placing the consumer in the best loan — and I personally take issue with that, because that is not the requirement in the legislation.
“The legislation responsible [i.e. the National Consumer Credit Protection Act] speaks about 'not unsuitable', a very different standard. So, we'll talk to ASIC about that in detail.”
The issue raised echoes that of a question raised at the ASIC Annual Forum 2017 earlier this week, which asked whether Australian brokers need to be subject to a ‘best interests’ duty.
Some solutions 'seek to solve problems that do not exist'
Connective also voiced concern with some of the other findings. Ms Hope-Pearson said: “Some of the findings, are I feel, not well calculated and we also take issue with how the findings may have been concluded based on the data provided. Some of those findings are things like: consumers who go through the broker channel are generally younger and generally have a lower income. Obviously one follows the other, if you are younger you are generally going to have a lower income — that comes with experience in the role. But it’s also the 'so what' factor. What exactly is that meant to conclude?
“There are also things in the report that [suggest] arrears are higher with consumers that go through the broker channel, but actually when you read through the report very thoroughly, and after ASIC have applied their data control metrics, the difference is very small. So, we want to be very careful that these headlines are not taken out of proportion and that people really understand what the data is about, what analysis was undertaken and that there are no unintended consequences that are formed off the back of that.”
Other areas Ms Hope-Pearson said Connective would be talking to the regulator about centred on conflicts of interest.
She said: “ASIC have high concern that there may be a conflict of interest with brokers placing consumers into a loan with a lender because they have volume bonus incentives or other soft dollar incentives… that conflicts with the broker choosing the right loan for the customer. That is a very tricky conclusion to draw, that is not based on fact. We'd be talking to them closely about that.
“The conflicts of interest that ASIC are concerned about are lender choice, and product-based conflict; where the broker may put a consumer into a loan that is higher than they can afford or need to get higher commission. Again, there is nothing to suggest that that is occurring… brokers, as lenders, have to comply with very strict responsible lending guidelines.”
She concluded: “We are most concerned about some of the solutions that have been put forward that seek to solve problems that do not exist and we will continue to reiterate that message and continue to ask for data/actual evidence to support that things need to change, to support that there are actually issues in place that are in need of resolution.
“Unintended consequences will always be the highest risk for this industry, so we need to work together collectively to ensure that any unintended consequences are assessed and resolved.”
Both AFG and Connective have said that they will be working closely with the regulator during the consultation period to refine the proposals and any proposed changes.