Media Statements

Global investment bank UBS is being reckless with its analysis of so-called ‘liar loans’ because it is based on implied presumptions, according to the Finance Brokers Association of Australia (FBAA).

UBS claims mortgages loaned on incorrect information provided by borrowers amount to $500bn, but FBAA executive director Peter White said that’s based on their interpretation of their own research and he is calling on them to prove their data.

“I want to see their data analysis,” said Mr White. “We need to see the questions they asked participants and we need to know how much and under what conditions they were paid.

“UBS must prove there is no steering of answers or influences to produce outcomes which are not factual or fair or commercially sound.”

Mr White also questions the validity of the data.

“They’re not a lender in the home loan space, so there needs to be clear transparency of their supposed results.

“This is not their data and not data from a bank/lender, so the question must be asked as to the accuracy and integrity of the research, which is fundamentally divorced of market broker and lender marketplace data.”

The Finance Brokers Association of Australia (FBAA) has welcomed news of increased scrutiny on the big banks and their behaviour when setting interest rates for mortgage products.

The Australian Financial Review reported on Wednesday that the Australian Competition & Consumer Commission (ACCC) had issued compulsory information notices to the big banks to gather information on how they set interest rates on their residential mortgage products.

The FBAA, the leading professional body for finance brokers in Australia, called for the review back in June and executive director Peter White is pleased that the ACCC has taken notice and decided to act.

“We applaud the ACCC for eventually doing its job in this regard, as we realised months ago there was a real possibility of the big banks passing the cost of the new bank levy on to its customers,” Mr White said.

Recent interest rate movement has seen some investor and interest only loans increase by as much as 66 basis points, some since the federal budget was handed down in May, but there has been little explanation as to why.

“Some of these rate increases are extraordinary and the Australian public deserves to know what’s going on,” Mr White said.

“The emphasis now is on the banks to justify their decisions to increase rates and maintain consumer trust in the bank sector.”

A call to scrap all mortgage broker commissions has been criticised by the Finance Brokers Association of Australia (FBAA) which says consumer groups making the suggestion have no regard for the competitive position and incredible value proposition that brokers bring to home loan borrowers.

FBAA executive director Peter White said it is very concerning when misinformation is disseminated by those claiming to be consumer advocates, but who don’t tell the truth.

“Home loan brokers and the non-bank sector have created a highly competitive and progressive lending environment that didn’t exist before,” he said.

“If interest rate margins of the 1980s still existed today without brokers, home loan interest rates would be around 7.5 per cent not 4 per cent.

“Competition created by brokers has fostered the opportunity for brokers to do work and home visits for loan interviews, create redraw facilities and lines of credit and offset accounts all of which never existed before.”

He said the consumer groups believe current commission structures should be replaced by a flat-fee model and while that sounds fine in part, the reality is it would cause interest rates to rise.

“The average loan amount nationally is around $450,000 and the average commission is 0.60 per cent, meaning a flat fee commercially would be around the $2,700 mark.

“In regional markets where loan sizes are smaller, a loan of $200,000 would in the current structures pay around $1,200 and not $2,700 in a flat fee model and lenders would never wear such a loss.”

Mr White said the groups also claim that mortgage brokers are giving advice, yet that’s not the case.

“Under the regulations that govern mortgage brokers, they give credit assistance and are doing work on behalf of the lender, which is why the lender pays them a commission and it has no bearing on the interest rate the borrower pays.

“If you don’t use a broker you go to a bank which still has the administration costs for the loan, so it’s cheaper for the bank to originate a loan through a broker than at a branch.”

He said the suggestion to abolish trail commissions is an ignorant position to take by what should be a responsible group of consumer advocates.

“If they knew their subject matter, they would know that trail commission is paid to brokers to offset costs of providing ongoing customer service and to manage the borrower’s ongoing and variable lending needs as required under the national consumer credit protection regulations.

“There is absolutely no evidence to suggest trail incomes harm competition.”

Reports that ASIC’s remuneration review is an opportunity for finance and mortgage brokers to self-regulate have been strongly criticised as being way off the mark by the Finance Brokers Association of Australia (FBAA).

Executive director Peter White said the industry is regulated by ASIC, and as such, can never truly self-regulate.

“For true self-regulation to exist, one needs to formulate the rules, write them and then police them without external influence,” he said.

“In the case of ASIC’s REM review, the industry can have input and offer guidance on possible measures and outcomes, but the decision is made by the minister through Treasury and ASIC then polices those outcomes.”

Mr White said industry bodies, such as the FBAA, provide some self-regulation, pointing out that the association has had internal dispute resolution processes available to members for well over ten years.

He revealed the FBAA process has just been authorised by the ACCC as a formal disciplinary tribunal that has greater powers and reaches across all finance segments, to “ensure the right outcomes are achieved from any dispute against a member”.

However, this tribunal doesn’t replace other dispute resolution processes, the ombudsman, courts, or ASIC’s powers, and “it certainly does not constitute true self-regulation”.

“It is also important during this ASIC and Treasury REM consultation process that over eagerness doesn’t cause us to throw the baby out with the bath water.”

As part of the association’s response to Report 516 (the REM Review) in relation to Proposal 1 (improving the standard commission model), the FBAA has taken a strong stance in not supporting any changes to commission structures that injure the broking profession and deliver no consumer benefits.

“As an industry association, we need to be extremely careful how things impact commercial arrangements, as we cannot make such considerations on behalf of our members.

“However, as we know, ASIC believes there needs to be some tweaking so we need to carefully tread this path without rushing into making poor decisions that impact people’s lives.”

Media Contacts: Brian Lowe – 0434 791 084 // Lyall Mercer – 0413 749 830

The nation’s peak body for finance and mortgage brokers says ongoing speculation on the Reserve Bank’s likelihood of increasing official interest rates is causing instability in the market.

The Finance Brokers Association of Australia (FBAA) says if rates are going to trend upwards, it would be better if it happened sooner rather than later because it would help to stabilise the economy.

“Delaying a decision doesn’t do anyone any good,” said FBAA executive director Peter White.

“If that’s the way it’s going to go, as has been suggested, it should probably start earlier so borrowers can prepare themselves when considering what loans are best suited to them.

“Fixed rates need to be factored in to the equation to ensure that increases do not negatively impact family budgets and future family needs.

“At the moment, the greed factor seems to reign with banks and if they hadn’t engaged in margin creep with interest rates over the past couple of years, we wouldn’t be in this potential position.”

Mr White said Australia would have a better-balanced economy if interest rates sat around the 6.0 per cent to 6.5 per cent mark.

“As it is, a vast amount of lending is based at a level two per cent above the prevailing borrowing rate for serviceability of a loan and that will help to ease any future rate increases from causing hardship.”

Media Contacts: Brian Lowe – 0434 791 084 // Barbara Gorogh – 0435 909 608

The new Australian Financial Complaints Authority (AFCA) being planned by the federal government will be good for consumers, according to the peak body representing Australia’s finance brokers, the Finance Brokers Association of Australia (FBAA).

The formation of AFCA has been criticised in the media by some smaller financial services firms and the Credit & Insurance Ombudsman (CIO), who claim it will favour the big banks and therefore won’t be trusted.

However, FBAA executive director Peter White said the new body will be focused on even better outcomes for small businesses and consumer borrowers, as has always been the case, not associations.

“The amalgamation of the Financial Ombudsman Service (FOS), the CIO and the Superannuation Complaints Tribunal (SCT) will improve systems that will lead to better consumer outcomes.

“We believe it will speed up turnaround times and streamline case management processes without the non-alignment of processes by two separate ombudsmen.

“The CIO needs to remember the ombudsman service is about borrower disputes being resolved and not industry bodies. There is no basis or substance to call for a royal commission into this.”

Mr White has also described as baseless, the criticisms by smaller firms that they will end up subsidising a scheme which accommodates the major banks.

“There is no evidence at all to support those claims.”

He said the FBAA fully supports the government’s initiative to create AFCA.

Media Contacts: Brian Lowe – 0434 791 084 // Lyall Mercer – 0413 749 830

A suggestion by the Finance Sector Union (FSU) to restructure brokers’ incomes is flawed, according to the Finance Brokers Association of Australia (FBAA).

The union believes there should be a universal income structure for bank employed mortgage salespeople and external mortgage brokers, however, FBAA executive director Peter White said a fee-for-service model in home loan broking won’t work.

“A broker is doing a large part of the work for the lender, therefore, it is commercially appropriate for the bank to pay them a commission for doing that work,” said Mr White.

He says while the union is very proactive in protecting the income rights of bank employees, it shouldn’t lump financial planners together with finance brokers because the two are vastly different.

“A finance broker does not give advice, as per the NCCP, but offers guidance on lending options and then assists a client through the application process to settlement, as per the lenders credit rules.

“Financial planners give advice and need to be independent as they can influence an investment market’s performance – returns and outcomes, whereas home loan brokers cannot influence any market outcomes.”

Mr White says there are around 25,000 brokers in Australia and the FSU proposal to restructure their incomes in this fashion would have a serious and negative financial impact on them.

“It potentially could cause brokers’ businesses to collapse and throw employees out of work.”

He says the FSU wants to protect the income and employment rights of banking employees, but brokers also employ people, so their staff employment rights must also be protected in addition to their business.

Media Contacts: Brian Lowe – 0434 791 084 // Lyall Mercer – 0413 749 830

A new $6.2 billion levy over four years on the top five banks contained in the federal budget has been cautiously welcomed by the Finance Brokers Association of Australia (FBAA), but it warns the decision could backfire on borrowers if the banks react badly.

FBAA executive director Peter White said while the government’s move is aimed at helping smaller banks compete with the big five, there is a risk the big banks could increase interest rates to cover the tax.

“I dare say the banks won’t simply absorb this levy, and if they don’t, this will be a bad outcome for home loan and business borrowers.

“It’s possible the banks could raise interest rates and that could put housing affordability out of the reach of more borrowers, so we are urging the banks to give an ironclad guarantee that they won’t pass on those costs.”

Meantime, Mr White hails as a good move the budget initiative to bring forward a comprehensive package of reforms to strengthen bank accountability and competition.

“The banks will need to be more accountable with the government to legislate a new banking executive accountability regime.

“It will increase competition in the financial system and improve consumer choices.”

Other components of the budget relating to small business also meet the FBAA’s approval, including the extension of the $20,000 immediate tax asset write-off for businesses with up to $10 million turnover.

The tax rate for small business is now at 27.5 per cent with the government aiming to lower that to 15 per cent.

Mr White said the budget also contained positive news for finance and mortgage brokers in other areas such as the government accepting all eleven recommendations of the Ramsey Review to combine the two industry ombudsman services into the Australian Financial Complaints Authority (AFCA).

The FBAA advised in December last year that such a move would bring better consumer and business outcomes for those needing to access this service.

He said the FBAA had also been signalling over the past eleven months that the treatment of serviceability for credit cards needs to be based on repaying the limit on a principal and interest basis over a defined term.

“The government has now confirmed this will be the case, among other beneficial consumer reforms, the banks will need to comply to.”

Media Contacts: Brian Lowe – 0434 791 084 // Lyall Mercer – 0413 749 830

Australia’s peak body representing finance brokers has urged borrowers to avoid choosing a mortgage based on incentives offered by lenders, as it could lead to unsuitable loans.

Executive director of the Finance Brokers Association of Australia (FBAA) Peter White, says reports that incentives such as cash discounts and overseas trips are being dangled in front of customers deemed to be low risk or high-net-worth borrowers, are worrying.

He said borrowers with job security and good credit are being targeted.

“As nothing is free these days, banks that offer incentives to borrowers need to be careful that they are not overlooking what’s in the best interests of their customers,” he said.

“A mortgage is a long-term commitment and it is foolish to lock yourself into a contract for such a large amount of money for the sake of a short term financial benefit.

“You also need to read the fine print as you may be agreeing to be inundated with emails for insurances, financial planning, or other cross-promotional services by the lender.”

He said while offering incentives is not necessarily unethical, it could be considered a grey area.

“ASIC and Treasury via the Minister for Revenue and Financial Services are looking at this right now under the NCCP, as incentives potentially put at risk consumers’ best outcomes.”

He also questioned the need for lenders to go down this route. “If the lender has the margin for incentives like this, you’d naturally ask why they can’t provide a lower interest rate or other long-term benefits.”

Mr White says the practice is yet another reason finance brokers now arrange over half the mortgages in Australia.

“Finance brokers know the market and can provide an expertise to ensure that the loan is not unsuitable for the borrower.

“When you use an industry-accredited FBAA broker, you are also protected by professional indemnity insurances and dispute schemes.”

Media Contacts: Brian Lowe – 0434 791 084 // Lyall Mercer – 0413 749 830

Global research by the Finance Brokers Association of Australia (FBAA) has shown that Australia is the only country in the world where clawbacks exist.

The research was conducted by the FBAA as part of its submission to the Australian Securities and Investments Commission Home Loan Commission Review for Minister for Financial Services Kelly O’Dwyer.

Executive director Peter White says the stumbling block is banks wanting to gain or hold market share in their lending portfolios.

“Brokers in Australia are clearly meeting the demands of the borrower market place and lender cost-effective distribution needs,” commented Mr White.

“Clawbacks abuse the broker channel which the banks have prospected for some 27 years, but now we are seeing some banks and non-banks offering products with no clawbacks.

“If clawbacks don’t exist in the rest of the world, then there is no excuse for them to exist here.”

Mr White points out that unfair clawbacks reflect circumstances that are beyond the control of brokers.

He says a death, divorce, the sale of a house, termination of loans one or two months before the clawback period ends and bank movement from broker portfolio to branch portfolio are things that can’t be controlled by brokers.

Mr White says the FBAA is petitioning domestic lenders to remove all unfair clawbacks which he says are restricting new entrants into the industry.

Their research also revealed that brokers in Australia are among the lowest paid in the world.

In countries where there are no trail incomes, brokers are paid between 1 per cent and 3 per cent as their upfront commission with no clawbacks.

“In Australia, whereby a broker may receive 0.6 per cent upfront and 0.15 per cent trail on the amortised loan balance, they might achieve on the average life of a loan – being approximately 3.5 years – around 1.1 per cent in total commission over time,” added Mr White.

“The average commission paid as an upfront from our researched countries is 1.26 per cent and the average trail income, where paid, is 0.20 per cent.”

In countries where trail commissions are paid, there are better lender and customer outcomes and reduced churn of portfolios.

Media Contact: Brian Lowe – 0434 791 084