Battle lines drawn over sales hurdles

Last month, MFAA chief executive officer Phil Naylor told the AFR that sales hurdles set by some of the major banks could possibly conflict with the industry’s ‘responsible lending’ credit laws when they come into play from 1 July.

The MFAA wrote to the federal treasury to argue that the volume hurdles contravene the key proposition of mortgage broking – choice.

Some brokers are understandably upset with the minimum requirements and many argue that sales hurdles represent a conflict of interest in how they provide advice.

While the debate surrounding minimum volume requirements has been ongoing since CBA first introduced volume hurdles in July last year, a backlash has emerged on the back of the forthcoming legislation.

The new National Consumer Credit Protection Act says a licensee must “have in place adequate arrangements to ensure that clients of the licensee are not disadvantaged by any conflict of interest that may arise wholly or partly in relation to credit activities engaged in by the licensee”.

Some brokers are arguing – with good reason – that minimum volume requirements will contravene this section of the Act.

On the flipside, there is little doubt that the banks are tired of the impact that poor quality broker submissions have on their loan assessment operations.

The banks’ rationale is that minimum volume requirements will ultimately improve both broker and bank efficiency – not to mention ensuring a better customer experience. The introduction of minimum volumes requirements is a blunt tool, but it has been an effective one.

It has taken the strain off processing and credit assessment staff, which has, in turn, helped speed up turnaround times. While volume hurdles has its critics, there are certainly brokers who support it.

Frequent business writers for some banks – particularly CBA – have defended the bank’s decision to implement minimum volume requirements, pointing out that they have seen a marked improvement in turnaround times. Ultimately, however, the bulk of the industry objects to the banks’ ruling and these objections look set to increase.

But whether the banks agree to withdraw hurdles in the future may come down to a legal ruling rather than the banks’ desire to keep the growing third party distribution channel happy.