After releasing a similarly scathing report last week, CHOICE released an article this week (17 July) outlining cases “illustrating how brokers navigate the system to sell disadvantaged Australians mortgages they cannot afford”.
The article, written by CHOICE daily news editor Tony Ibrahim, outlines a case of a “36-year-old single mother to special-needs children [who] informed a mortgage broker she was battling a gambling addiction… [and was told] to withdraw money from ATMs outside of pubs and casinos to ‘keep her bank statements clean for three months’”.
In another case outlined by CHOICE, an example was given of a broker who claimed an “ex-armyman with post-traumatic stress disorder” had “seven times more superannuation” than he did, to help get a deal through.
Mr Ibrahim wrote that the two consumers in question “couldn't afford their mortgages” and eventually turned to financial hardship programs.
CHOICE argued that cases such as these therefore make the argument for remuneration reform (as is currently under consultation by government).
Anna Dooland, the financial counsellor who worked on the cases at Financial Counselling Australia, commented in the article: "The way the [commission payments] are structured really leaves vulnerable people exposed because people believe they can trust brokers and some brokers take advantage of that.”
Cases are ‘extreme minority’
However, the executive director of the Finance Brokers Association of Australia (FBAA), Peter White, has hit out at the “out of control” consumer advocacy groups for its claims, and for tarring the whole industry with the same brush.
Indeed, according to the Credit and Investments Ombudsman (CIO), just 6.3 per cent (299) of all complaints received in 2015/16 (the most recent data available) were against brokers and aggregators.
Mr White acknowledged that “every industry has its crooks, which we need to stamp out” but emphasised that the majority of the industry works to help consumers get an appropriate loan.
Noting that brokers settle around 30,000-odd mortgages with lenders every month, the FBAA executive director said that CHOICE has highlighted “brokers who are in the extreme minority, and whom we all want seen out of the industry and behind bars. No questions asked".
But Mr White added that it "simply doesn't mean that the commissions paid to brokers are wrongly structured".
“People who want to do wrong will do so, regardless of anything else, this is why we have ASIC to police our industry,” he said.
“Those extreme minority who break the law must be dealt with by the appropriate authorities and compensation made to those who were injured by their actions… This includes the banks as, at the end of the day, the bank approves and settles the loan.”
Mr White continued: “It is not a perfect world but the commission structures that exist in the home loan broking sector may need some tweaking, but, that doesn't mean the structure is fundamentally flawed and needs pulling apart and doing something completely different.”
Both the FBAA and MFAA released statements last week denouncing the consumer advocacy groups’ response to Treasury’s consultation on ASIC's remuneration review, calling it “ignorant” and “misinformed”.
Speaking at the time, Mr White said that the groups had “no regard for the competitive position and incredible value proposition that brokers bring to home loan borrowers”, adding that it was “very concerning” when “misinformation is disseminated by those claiming to be consumer advocates, but who don't tell the truth”.
Likewise, the Mortgage & Finance Association of Australia (MFAA) said that it was “disappointed” by the consumer groups’ submission and comments last week, adding that they would “significantly harm the interests of consumers they claim to represent”.
Mike Felton, CEO of the MFAA, said last week: “I do not see how removing brokers from the industry, and consolidating power back in the hands of banks, serves the needs of consumers.”