Bank adjusts upfront commissions

Following consultation, ME Bank has now said that it is changing its structure in line with the remuneration reform developed by the Combined Industry Forum. The reform requires the value of upfront commissions to be linked to the amount drawn down by borrowers instead of the loan amount.

ME Bank said it will therefore be reviewing each account twice over the first year, at six-month and 12-month intervals post-settlement.

If the customer has drawn down additional funds greater than $10,000, then additional upfront commission will be paid to a maximum of the approved facility.

The change is effective on new loans submitted from 1 May 2020.

Speaking of the change, ME’s head of broker distribution, Mathew Patterson, said the new commission structure had been developed “in consultation with industry and stakeholders to ensure it is appropriately balanced to meet the needs of customers and brokers”.

“We have designed a commission model fully compliant with the Combined Industry Forum and best interests duty reforms while providing a greater degree of flexibility for our broker partners.

“Our policy allows brokers to meet the needs and objectives of each customer while ensuring brokers aren’t financially penalised through having to possibly wait for almost a year to be paid.

“More than 60 per cent of brokers are single or dual operators running small businesses, according to the Mortgage & Finance Association of Australia, so cash flow is critical,” he said.

Several other lenders, including Westpac, Macquarie and Teachers Mutual Bank, have already announced similar changes.

The remuneration policy changes come amid continued debate surrounding the method in which upfront commissions are calculated, which resurfaced following the government’s decision to extend the proposed net of offset payment period from 90 days to 365 days.  

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).

Some stakeholders had warned that a disparity in the policies adopted by lenders could create lender-choice conflicts, while others have highlighted the impact of policy uncertainty on broking businesses.

Such concerns have prompted calls for the standardisation of broker remuneration policies adopted by lenders. However, others, including ANZ CEO Shayne Elliott, have resisted the push for standardisation.

It is expected that lenders will continue to announce their amended commission structures ahead of the introduction of the best interests duty commencement, which the Australian Securities and Investments Commission (ASIC) announced earlier this month would be deferred from 1 July 2020 until 1 January 2021.

According to the regulator, its decision was made to allow industry participants to “focus on immediate priorities and the needs of their customers” amid the COVID-19 crisis. 

However, ASIC stressed that it expects entities to continue preparing for commencement on the extended timeline.

[Related: Government agrees to 365-day net offset payment]