The Labor opposition’s shift away from a borrower-pays broker remuneration model has been welcomed by non-major lenders.
The Australian Labor Party (ALP) has officially announced its policy response to the broker remuneration recommendations from the royal commission, backing away from a consumer-pays model and calling for a lender-paid standardised flat fee.
The federal opposition had previously expressed “in principle” support for all 76 of Commissioner Kenneth Hayne’s recommendations, which would include a ban on a lender-paid commission-based remuneration to brokers.
However, following widespread campaigning and lobbying by industry on the risks that Commissioner Hayne’s consumer-pays-fee recommendation poses to the viability of the broker channel, to competition and to good consumer outcomes, Labor has softened its position.
Instead of recommending that the consumer pays a mortgage broker a fee, Labor has proposed that lenders instead pay brokers a standardised upfront commission, capped at 1.1 per cent, as a proportion of the drawn down loan amount.
The ALP has also said it would ban the payment of other incentives to brokers by lenders and limit the clawback period to two years after a loan is settled.
However, like the Coalition government, the Labor opposition would, if elected, ban trail commissions for brokers for new loans from 1 July 2020.
Heritage Bank CEO Peter Lock welcomed the opposition’s decision, noting that the royal commission’s proposal “risked causing unintended consequences that would not have been in the best interests of competition in the banking industry”.
He continued: “The reforms were likely to decimate the broking industry, which would not have been a good outcome.
“There’s no doubt brokers play a crucial role in boosting competition.
“Without them, the big four banks would simply get stronger because they have the national reach and network that is not available to smaller lenders like Heritage, who are doing their best to provide a competitive force in the banking market.”
Mr Lock also welcomed the Labor Party’s decision to “take on board” concerns from industry stakeholders before making a formal policy announcement.
“Heritage Bank is a strong supporter of the mortgage broker channel, and we will continue to push for reforms that maintain its ability to achieve better outcomes for customers and for competition,” he added.
MyState Bank CEO Melos Sulicich echoed Mr Lock’s remarks but noted that there’s still more “devil in the detail to be worked through”.
“I think it’s sensible,” he said. “I think given the ban on trail and the best interest duty, it’s sensible to come up with this proposition.”
Mr Sulicich added: “There will obviously be a whole lot more to go into about how that comes into effect and what that means.
“There will be a whole package of other initiatives around that. It’s just one part of the whole package.”
[Related: Industry reacts to Labor’s policy revision]
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