The Australian Securities and Investments Commission challenged mortgage brokers to do better after a study revealed that they are not meeting the needs borrowers.
ASIC conducted a survey with approximately 2,300 Australians. It was found that 58% had received only two or fewer options for home loans from their mortgage brokers. Nearly half of the respondents got a mortgage at a bank they already owned.
Respondents said that mortgage brokers present home loans options inconsistently. Sometimes they gave no explanation or little explanations as to why they recommended certain home loans.
Sean Hughes, ASIC commissioner, explained that brokers account for three-fifths (35%) of all home loans in Australia. Brokers need to offer excellent customer service.
A home loan is one the most significant financial decisions a consumer can make. He stated that lenders, brokers, and aggregators should all be available to consumers to help them compare loan options and let brokers know what home loan option they have selected.
Best interests duty
After the completion of investigations by the royal bank commission in early 2018, the federal government was encouraged and encouraged to pass legislation concerning the “best interest duty” obligations of mortgage brokers.
The National Consumer Credit Protection Amendment, Mortgage Brokers (Bill 2019) will penalize brokers who fail clients’ best interests.
Maximum penalties for breaching best-interests duty are proposed at $1.05m
“ASIC strongly supports the government’s announcement regarding a best interest obligation for mortgage brokers. Hughes stated that this duty would allow brokers to be more in accord with consumers’ reasonable expectations.
You can view the draft bill until October 4, 2019 and it will be implemented by July 2020.
Many lenders and industry associations supported the law. David Smith, chief client officer at Aussie Home Loans, stated that the bill shows how brokers must prioritize the needs and wants of borrowers.
He said that best-interest duty has two core components: transparency for customers, and positive outcomes. Customers will have greater confidence in the industry, he stated to The Sydney Morning Herald.
Mike Felton, CEO of the Mortgage and Finance Association of Australia stated that the bill’s purpose is to periodically review broking practices.
He informed The Adviser about broker regulatory roundtables being arranged to discuss unintended consequences, and receive feedback from brokers.
Other stakeholders were concerned about the possible implementation of the law. Peter White of Finance Brokers Association of Australia expressed concern about the bill becoming a “reckless experimental”.
According to him, the best-interests obligation was something that could not be afforded. “It becomes a wasteful of time, and becomes a piece work that isn’t properly structured due to tight time frames, and then requires amendment after amendment which means that it was poor legislation to begin with.”