"We congratulate the Federal Government for passing the best interests duty for mortgage brokers. This is an important day for Australian borrowers."
"People will now be able to expect that mortgage brokers are acting in their best interests, and if brokers don't comply, they will face penalties," says CHOICE CEO Alan Kirkland.
"For too long, the broking industry has depended on recommending mortgages that provide the best commission for them rather than the best deal for their customers. This has led to brokers selling people into loans that are riskier, take longer to repay, and are more likely to fall into arrears," says CHOICE CEO Alan Kirkland.
"CHOICE first raised this concern in 2015 after our shadow shop of the sector uncovered brokers recommending that people borrow more than they needed and pushing poor value loans."
"This best interests duty, well enforced, will promote price competition in the home lending market. Mortgage brokers will be unable to justify sending large numbers of customers to big banks that offer highly priced loans. They will now be legally required to scan the market and find loans that best meet the needs of people."
"The mortgage broking industry is now on notice. Brokers who fail to recommend mortgages that offer good value to borrowers may face serious penalties."
Banning harmful campaign-based and volume-based commissions
"We welcome the Government taking action by banning harmful campaign-based and volume-based commissions for mortgage brokers. These commissions lead to conflicted advice and encourage brokers to recommend poor value mortgages for their customers."
"We look forward to the Government's review of upfront and trail commissions for brokers in 2022, given that these were strongly criticised in the final report of the Royal Commission."
Media contact: Jim Hook, 0430 172 669, firstname.lastname@example.org
CHOICE's original 2015 shadow shop is available here: https://www.choice.com.au/money/property/buying/articles/mortgage-broker-shadow-shop
Further background on the need for a best interests duty is available here: https://www.choice.com.au/money/property/buying/articles/can-you-trust-your-mortgage-broker
Under existing legislation, mortgage brokers were legally required to recommend mortgages that were only "not unsuitable" to people. This new legislation will mean that mortgage brokers have to recommend loans that are in the best interest of borrowers. Brokers will face civil penalties up to $1,050,000 for failing this duty.
The Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers
(2019 Measures) Act 2019 passed today and acts on three important recommendations from the Banking Royal Commission including the:
- introduction of a best interests duty for mortgage brokers (Recommendation 1.2)
- closing of the loophole for most insurance contracts from unfair contract terms protections (Recommendation 4.7); and
- removal the loophole that exempts funeral expenses-only policies from the Corporations Act. (Recommendation 4.2)