The broking industry has responded to a media report highlighting potential compliance issues relating to a major Australian lender’s home loan introducer program.
Leading broking industry bodies have responded to a media report suggesting the Commonwealth Bank of Australia (CBA) has identified “compliance issues and potential fraud” in home loan referrals from real estate agents, lawyers, and other partners.
Last Thursday (19 February), The Australian Financial Review reported that CBA had “discovered compliance issues” by a “string” of partners that are paid commissions to bring in businesses, citing three sources speaking on the condition of anonymity.
These findings were then passed on to the Australian Securities and Investments Commission (ASIC), according to the Financial Review report.
The Financial Review said issues involved CBA’s third-party loan referral program.
Under the program, professionals such as accountants, solicitors, conveyancers, real estate agents, and financial planners direct clients to the bank for home loans, and CBA provides a commission when these referrals result in a home loan.
However, the Financial Review report also noted the nature of the compliance failures was unclear and that CBA has since revised the program, restricting eligible leads to customers who already have a loan with the bank and have held that facility for at least six months.
"Risks that should not be ignored"
The Mortgage and Finance Association of Australia (MFAA) responded to the report of compliance and potential fraud concerns, with CEO Anja Pannek saying the developments highlight longstanding concerns regarding risk that can emerge in large-scale paid lender referral programs, while also highlighting a broader policy question.
“The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry exposed serious failings associated with these types of referral arrangements, and ASIC has since taken enforcement action where programs have strayed into unlicensed credit assistance and, in some cases, fraudulent conduct,” she said.
“The regulatory framework applying to mortgage brokers was deliberately strengthened following the Royal Commission to improve consumer protection and accountability. It is reasonable to ask whether equivalent safeguards should apply wherever financial incentives influence home lending outcomes.”
Pannek said the design and rewards of these referral programs warrant closer examination.
“The level of financial incentives in these programs, together with shifts by some lenders away from the Sedgwick remuneration principles for bank staff, creates risks that should not be ignored,” she said.
The industry body also stressed that robust consumer protections must apply no matter how a borrower obtains a home loan.
“Unlike the extensive protections consumers receive when working with a mortgage broker, there are no equivalent regulatory guardrails governing referrer programs,” she said.
“Mortgage brokers operate within a comprehensive regulatory framework that includes strict licensing requirements, the best interests duty, regulated remuneration arrangements, education and professional standards, and mandatory membership of the Australian Financial Complaints Authority.”
The MFAA also noted that referrers, by contrast, are not permitted to provide credit assistance and are generally limited to passing on customer contact details, yet may receive commissions if a loan proceeds.
“Mortgage brokers are one of the most highly regulated distribution channels in consumer lending. This framework exists to protect consumers and maintain confidence in the system,” she said.
"Fraught with danger"
The Finance Brokers Association of Australia (FBAA) also commented on the report, with interim CEO Peter White also noting the risks of introducer programs.
"Referral programs like this are fraught with danger and were heavily criticised by the Hayne royal commission," he said
"They are dangerous to the consumer who is missing out on professional advice by a licenced finance broker who must adhere to Best Interests Duty, and are a way of trying to cut out brokers by offering incentives to unqualified people to simply make money with no consequences like clawback. The FBAA in March 2024 lodged a complaint with ASIC over the CBA’s Unloan referral program and no action was taken. We would call on all lenders to act responsibly and dump these programs."
Meanwhile, FBAA REG compliance specialist David Carson also weighed in.
"It is yet another example of why lenders need to respect the benefits of dealing with brokers - people who are trained to actually assist consumers to apply for credit, who are qualified, licensed and act with integrity. I imagine consumers wouldn't see great outcomes if mortgage brokers were able to dispense legal or accounting advice or services in other professions they weren't qualified in. The NCCP Act's referral exemption loophole continues to encourage this behaviour. It is no surprise there are problems with a system that offers generous incentives with no consequences," he said.
"The value proposition of brokers is very clear. Problems with introducer and referral programs only reinforce the message to lenders that they should respect brokers and the role they play. Brokers deliver enormous benefits to their customers and help maintain stability and integrity to the services provided by lenders too."
Ongoing concerns
The broking industry has criticised the use of referrals and introducer programs before.
In February 2024, both the MFAA and FBAA criticised a scheme soft-launched by Unloan, CBA’s direct-to-consumer home loan division, which paid referral fees to introducers such as accountants, conveyancers, financial planners, lawyers, and real estate agencies for each loan settled.
Other major banks have also faced scrutiny in this area.
NAB’s Introducer Program was examined during the banking royal commission, with the major later paying $15 million in penalties.
ASIC also took enforcement action against ANZ over its introducer arrangements, resulting in a $10 million fine.
In an opinion piece published on The Adviser last year, then-Lendi Group CEO David Hyman said that it was time for the industry to clean up introducer risk.
“An introducer is not a broker. They refer a customer to a lender and get paid if the loan settles. They do not provide credit advice, they do not arrange finance, and they do not have the statutory duties that brokers carry,” he said.
“Mortgage brokers must comply with the National Consumer Credit Protection Act and act in the customer’s best interests under ASIC’s guidance. Introducers rely on a licensing exemption. Brokers have to prove they have acted in the customer’s best interests every time. Introducers do not. That is an uneven playing field and one that puts customers at risk.”
[Related: Broking industry outraged by Unloan introducer program]
