Net of offset confusion ‘wasting brokers’ time’

In the weeks following the publication of the government’s National Consumer Credit Protection Amendment (Mortgage Brokers) Bill 2019, industry leaders noted the impact of contrasting remuneration policies adopted by lenders off the back of the Combined Industry Forum’s move to limit the upfront commission paid to brokers to the amount drawn down by borrowers (net of offset).

Connective director Mark Haron previously stated 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 predetermined period post-settlement.

Mr Haron said 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.

His concerns were echoed by Loan Market executive chairman Sam White, who called for an arrangement that “mirrored” existing clawback provisions, which, under the federal government’s bill, would limit the clawback period to two years and prevent brokers from passing on such costs to their clients.

Both Mr Haron and Mr White had said they would lobby for amendments to the bill.

Ms Christie-David is the latest industry stakeholder to weigh in, highlighting the impact of the policy uncertainty on broking businesses.

“I think net of offset is a really tricky one, because brokers will do the work for the loan and if the client decides to put some of those funds into an offset account, then you don’t get paid for the effort and the time that you put in,” she said.

“We’ve had instances where clients have used the funds for the loan, but they had extra savings and put that in their offset. That’s still counted as net of offset even though they’re separate funds.

“That line is really blurred.”

Ms Christie-David said that the confusion surrounding the way in which lenders calculate commissions had been distracting brokers from their primary responsibilities.  

“To standardise the net of offset approach would be welcomed by anyone, so you know where you stand,” she said.

“Is it reviewed at six months? Is it reviewed at 12 months? You don’t know where you stand with a lender [under current arrangements] and you have to waste your time every month looking for your commission statement. 

“That’s not what brokers want to be doing; they want to help people buy properties.”

Despite calls for reforms, it was recently revealed that Treasury would not consider such reforms as part of its implementation of the best interests duty.

Connective director Mark Haron told his members that the industry will need to self-regulate, with government-led reform taken off the table.  

“I know net of offset utilisation payments have been extremely disruptive [for a lot of brokers] because most banks have different ways of doing it,” he said.

“We’ve voiced, as an industry, our frustration with that. 

“We did ask if they could look at the legislation to [standardise] that, but they have no interest in doing that, so we have to forge ahead as an industry to try and get to a more consistent place across all the lenders in that respect.”

However, Mr Haron said that he is hopeful that the industry will reach a solution, noting that there’s a general consensus regarding the time frame for post-settlement drawdowns.   

“Regardless, 90 days has been seen by everyone as a ridiculous time frame for funds to be utilised,” he said.  

“What we’ve generally agreed on from an industry perspective is that at a minimum, it should be 365 days.”

[Related: Treasury takes net of offset standardisation off the table]