Labor has proposed a fixed-rate commission for mortgage brokers rather than accept the banking royal commission recommendation to apply user-pay fees to the service.
Commissioner Kenneth Hayne had recommended clients of mortgage brokers pay the fee, instead of banks, to eliminate conflicts of interest. Labor had originally pledged “in-principle” support to enact all of Hayne’s recommendations, but backed down on the mortgage broker fee issue on Friday, announcing it would not reverse the current fee payment scheme, and instead would cap rates at 1.1% of the property loan. The policy change follows lobbying from the mortgage broker industry.
Shadow treasurer Chris Bowen said Labor had outlined “a better way of achieving the objectives” Hayne had laid out.
“In relation to mortgage brokers, Commissioner Hayne found in effect two problems – he found that conflicted remuneration was changing the products that were recommended to customers and also leading to bigger loans and he recommended that conflicted remuneration be abolished by customers paying upfront,” Bowen said.
“Now we’ve been consulting with mortgage brokers, with mortgage broker groups, with small banks and credit unions as well as financial services industry more broadly about how to achieve the objective that Commissioner Hayne set out and we do have a slightly different way of achieving that objective.
“We do want to see conflicted remuneration taken out of mortgage broking but we do recognise that upfront commissions will play a role to take the financial pressure off customers.”
Labor had immediately accused the government of not accepting all the commission’s recommendations in its own response, saying it would implement all the recommendations.
In response to Labor’s policy switch, the treasurer Josh Frydenberg said the change in policy was “one of the most humiliating back-downs in recent memory”.
In announcing Labor’s formal response, Bowen acknowledged the party had fallen one short of adopting all 76 recommendations, but said the government had only accepted 60.
He said Labor’s decision to set a fixed-rate commission balanced the concerns of the mortgage broking industry – which said a user pay system would result in many brokers shutting up shop, limiting competition to the big banks – with Hayne’s conflict of interest concerns.
“We have a different way of fixing that problem and we do so very openly and transparently waiting for an election to give the Australian people plenty of notice of our intentions and the mortgage broking sector the clear transparency of our approach,” Bowen said.
“We’ve taken the time to consult, to talk to mortgage brokers, to the banks and the smaller banks in particular who rely on mortgage broking for the channel to ensure competition.
“I think we have a very good product offering here in relation to our policy.”
In producing its response, which built on the three private members bills Labor announced earlier this week, Labor also committed to a newcompensation scheme which would allow some victims of banking misconduct to reopen their cases, as well as lifting the current cap on claims to $2m.
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