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MPs slam call to ban upfront commissions

by Charbel Kadib6 minute read
Australian House of Representatives

Coalition government MPs have railed against reforms that would “ride roughshod” over brokers and enhance the power of the big four banks in the mortgage market.

Addressing the House of Representatives following the release of the standing committee on economics’ fourth report into its review of the four major banks, Coalition MPs Barnaby Joyce and Ted O’Brien cautioned against the full implementation of the banking royal commission’s recommendation to ban commission-based remuneration in the broking industry.

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In his final, three-volume report, Commissioner Kenneth Hayne recommended that lenders be prohibited from paying trail commission to mortgage brokers in respect of new loans within about 12 or 18 months, and within a further 12 to 18-month period, prohibited from paying any other commissions to mortgage brokers.

In response, the Morrison government committed to banning trailing commissions from 1 July 2020 but stopped short of removing upfront commission-based payments to brokers, as recommended by Commissioner Hayne.


However, the federal Labor opposition has noted its intention to adopt all 76 recommendations outlined in the banking royal commission’s final report, including a complete ban on commissions to brokers and the introduction of a consumer-pays model.

In his address to parliament, Barnaby Joyce, federal member for the seat of New England and former deputy prime minister, called for “temperance” in the legislative response to Commissioner Hayne’s recommendations, flagging risks to competition if commissions are banned entirely.

We have to make the appropriate changes, but we can’t ride roughshod over every broker,” Mr Joyce said.

“I think brokers have played a substantial role in spreading the customer base away from the four major banks and into minor banks.

“If we lose sight of that, we are actually going to reduce competition.”

Mr Joyce claimed that the commission’s recommendations may have contributed to the rise in the major banks’ share prices as a result of the perceived implications on competition.

Following the release of the commission’s final report, the share prices of ASX-listed brokerages Mortgage Choice and the Australian Finance Group fell sharply, dropping by 25 per cent and 29 per cent, respectively.

In contrast, the Commonwealth Bank of Australia’s (CBA) share price, for example, increased by 4.6 per cent on the same day.

“I believe that might have been one of the reasons where, after the banking royal commission was brought down, the more observant realised that the price of the major banks should go up, because they could see a reduction in competition,” Mr Joyce added.

“That’s certainly something we didn’t want, and we certainly did see a rise in share prices of the major banks after the royal commission came down.”

Member of the federal seat of Fairfax Ted O’Brien also weighed in on the debate, noting his concerns regarding a move to ban upfront commissions, despite expressing support for the introduction of a “best interest duty” and the banning of trailing commissions.  

“[I] do have concerns around the idea of banning, abolishing upfront fees and upfront commissions. By doing that, plus the trails, mortgage broking would be over,” he said. “Mortgage broking as a sector would be dead.”

Mr O’Brien stated that he spoke to mortgage brokers in his electorate, who he said were “baffled” by the Labour Party’s commitment to introducing a consumer-pays model, which he said would see the industry “completely destroyed”.

“They signed up to that without even reading it,” he continued. “This is the incompetence of the Labor Party.”

Mr O’Brien concluded: “[We] cannot stand for that, and I for one will be standing up for the 125 mortgage brokers in my electorate of Fairfax, whose industry should not be destroyed outright by the blindness of the Labor Party.”

However, in its analysis of the commission’s final report, Deloitte claimed that Commissioner Hayne’s call for a borrower-pays remuneration model and introduction of a “best interest duty” would not “sound the death knell for the industry”.

The consultancy firm claimed that the proposed reforms could serve as “opportunity” for the third-party channel.  

Deloitte, however, warned that it is “critical” that policymakers “progress with care” and “focus on protecting robust and healthy competition in the market”.

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.  

[Related: Netherlands model ‘was a failure’: Sam White]






MPs slam call to ban upfront commissions
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Charbel Kadib

Charbel Kadib


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


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