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Treasurer urged to initiate industry consultation

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Charbel Kadib 9 minute read

Mortgage Choice CEO Susan Mitchell has called on the federal government to open consultation with the broking industry before adopting remuneration reforms.

Ms Mitchell has called on Treasurer Josh Frydenberg to hear the concerns of stakeholders before proceeding with broker remuneration reforms inspired by Commissioner Kenneth Hayne’s recommendation to introduce a borrower-pays model in the banking royal commission’s final report.

Following the release of the final report, the Treasurer announced that the government would fall short of banning upfront commissions but would commit to phasing out trailing commissions from* 1 July 2020. 

However, Ms Mitchell observed that the industry was not given a “right of reply” to the banking royal commission’s recommendations and noted the industry’s “significant concerns” about the impact on consumers and competition if the changes are implemented without consultation.


Ms Mitchell also flagged the risk of Commissioner Hayne’s proposal to introduce home lending fees via the branch and broker channels.

“Currently, if all of the commission’s recommendations are adopted, the banks will be given the green light to charge a multi-thousand-dollar fee to borrowers to secure a home loan product,” Ms Mitchell added.

“This will hit borrowers hard, after they’ve saved for years for a deposit totalling tens of thousands of dollars.

“Further, the unintended consequence of handing back power to the banks is a possible steady increase in interest rates.”

The Mortgage Choice CEO said a borrower-pays model would not produce good customer outcomes, stating that it would disincentivise switching.


“Adding more costs in the form of an upfront fee paid regardless of whether the customer goes to a broker, or directly to a lender, cannot possibly be a good outcome for consumers,” she continued.

“Fees could also prove to be a disincentive for refinancing and switching to a better financial product if the interest savings don’t offset the switching costs.

“These changes will result in poor consumer outcomes, which is not in line with the original intentions of the banking royal commission.”

Ms Mitchell welcomed Prime Minister Scott Morrison’s commitment to cooperating with the industry throughout the reform process.

“It was a relief to hear Prime Minister Scott Morrison say earlier this week that the Commission’s recommendations could be absorbed over time, as long as that was done in consultation with the industry,” Ms Mitchell said.

Pointing to the consultation process undertaken in the financial planning industry prior to the implementation of the Future of Financial Advice (FOFA) reforms, Ms Mitchell warned that if a similar process was not undertaken in the broking industry, the sector could “undergo a massive contraction”.

“I’m calling for confirmation from both sides of government that a consultation process will be instigated. This will at least give the broking industry comfort that our point of view will be heard,” Ms Mitchell said.

“It is understandable that the Australian public want to see significant change in banking practices following the evidence given at the banking royal commission hearings, but the mortgage broker channel, which is both successful and popular with borrowers, is bearing the brunt.

“The same can be said for the smaller lenders that do not have a branch network, for whom brokers provide a shopfront.”

The CEO added: “Looking ahead, I hope common sense prevails and the industry and both sides of federal politics can all work towards a level playing field for lenders and brokers.

“I believe this can best be achieved through consultation with the mortgage broking industry. 

“Australian borrowers deserve nothing less.”

Ms Mitchell’s call for consultation followed the news that four participants of the Combined Industry Forum (CIF) withdrew from the cross-industry body.

The CIF was formed to facilitate consolidation between lenders, banking industry associations, third-party stakeholders and consumer groups in an effort to introduce broking industry reforms.

However, consumer group CHOICE, Consumer Action Law Centre, Financial Counselling Australia and Financial Rights Legal Centre announced that they have removed their representatives from the CIF.

Following their announcement, CHOICE stated that the former CIF participants were lobbying on the federal government to implement Commissioner Hayne’s broker recommendations in full.

“We joined the mortgage broking industry’s Combined Industry Forum because we were willing to believe their commitment to reform,” CHOICE CEO Alan Kirkland said.

“Instead, we have been locked in discussions with them for years, with no progress on introducing a best interests duty for brokers or removing conflicts from the sector. It took a royal commission to get a decent plan for reforming the sector.”

“With many members of the forum now backing the mortgage broking lobby’s political campaign against the royal commission reforms, it is clear that they are only interested in blocking meaningful change. Commissioner Hayne made it clear that upfront and trail commissions create unacceptable risks to consumers, and we can’t be part of any process that fails to acknowledge this.”

The broking industry has strongly opposed such changes, with industry leaders flagging the risks of structural changes to the broker model on competition in the mortgage market.

The industry has also launched campaigns promoting the broker proposition, with the Mortgage & Finance Association of Australia funding a “Don’t Kill Competition” campaign, which aims to demonstrate to a mass audience the negative ramifications of potential policy changes.

Grass-roots campaigns have also been launched, which include petitions with over 40,000 signatures.  

*The article was updated to reflect that the federal government has committed to banning trailing commission for new loans from 1 July 2020. 

[Related: Government and opposition battle it out on broker front]

Treasurer urged to initiate industry consultation
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Charbel Kadib

Charbel Kadib

Charbel Kadib is the news editor on The Adviser and Mortgage Business.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

Email Charbel on: This email address is being protected from spambots. You need JavaScript enabled to view it.


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