Today is the last day in which broking industry stakeholders can lodge submissions to Treasury regarding the federal government’s draft best interests duty bill.
Broking industry stakeholders have one last opportunity to provide Treasury with feedback regarding the Morrison government’s National Consumer Credit Protection Amendment (Mortgage Brokers) Bill 2019, with the first round of consultation closing this afternoon.
The draft bill was introduced in late August and contains a new best interests duty obligation on mortgage brokers, as recommended by commissioner Kenneth Hayne in the final report of the banking royal commission.
The proposed amendment to NCCP states that brokers “must act in the best interests of consumers when giving credit assistance in relation to credit contracts”, meaning:
The draft bill notes that the duty to act in the best interests of the consumer in relation to credit assistance is a “principle-based standard of conduct” and “does not prescribe conduct that will be taken to satisfy the duty in specific circumstances”.
“It is the responsibility of mortgage brokers to ensure that their conduct meets the standard of ‘acting in the best interests of consumers’ in the relevant circumstances,” the bill states.
The bill also states that the content of the duty “ultimately depends on the circumstances in which credit assistance is provided”.
Examples of such content cited in the draft bill include:
In addition to the new best interests obligation, the draft bill requires a mortgage broker to “resolve conflicts of interests in the consumer’s favour”.
The bill states that “if the mortgage broker knows, or reasonably ought to know”, that there is a conflict between the interests of the consumer and the interests of the broker or a related party, the mortgage broker “must give priority to the consumer’s interests”.
The draft bill also builds on remuneration reforms proposed by the Combined Industry Forum, which includes:
The proposed regulations also limit the period in which commissions can be clawed back from aggregators and mortgage brokers to two years and prohibit the cost of clawbacks being passed on to consumers.
Broking industry stakeholders largely welcomed the draft bill.
CEO of the Mortgage & Finance Association of Australia Mike Felton noted that with the broking industry “systemically important to the Australian economy”, it is “appropriate” that the industry’s practices be regularly reviewed by government and regulators.
However, some stakeholders, including mortgage aggregators Connective, Loan Market and AFG, revealed that they’d use the consultation process to lobby for more equitable remuneration arrangements between lenders and brokers.
Connective director Mark Haron noted the impact of contrasting remuneration policies adopted by the lenders off the back of the CIF’s move to limit the upfront commission paid to brokers to the amount drawn down by borrowers (net of offset).
Mr Haron said that some lenders had opted to withhold the payment of commission for additional funds arranged by a broker, which are utilised by a borrower after a pre-determined period post-settlement.
The Connective director added that the disparity in the application of the CIF reforms had increased risks of “lender choice conflicts”, which could hinder compliance with the newly proposed best interests duty.
Loan Market executive chairman Sam White also noted his concerns with existing net of offset arrangements.
Mr White called for an arrangement that better aligns with existing clawback provisions, which, under the federal government’s newly proposed bill, would limit the clawback period to two years.
The new provisions are scheduled for implementation by 1 July 2020.
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.
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