March 12, 2019
The Government has stepped back from its earlier position on dispensing with trail commissions for mortgage brokers.
In a statement released this week, the Federal Treasurer, Josh Frydenberg, has said that, following consultation with the mortgage broking industry and smaller lenders, “…the Coalition Government has decided to not prohibit trail commissions on new loans, but rather review their operation in three years’ time.”
This announcement differs from the Government’s initial response to the Banking Royal Commission’s recommendation 1.3, which called for lenders to be prohibited from paying trail commission to mortgage brokers in respect of new loans, to which the Government’s original response was that from 1 July 2020, it would prohibit – for new loans – the payment of trail commissions from lenders to mortgage brokers and aggregators.
In his release, the Treasurer said the mooted 2022 review is to be conducted by the Council of Financial Regulators and the Australian Competition and Consumer Commission – a review which he says will also consider the continuation of upfront commissions.
The Treasurer said the Government has already announced:
- The best interests duty will legally oblige mortgage brokers to act in the best interests of consumers
- A new requirement that the value of upfront commissions be linked to the amount drawn‑down by borrowers
- A ban on campaign and volume-based commissions
- A two year limit on claw-back, starting from 1 July 2020.
He says these changes will address conflicts of interest in the industry by better aligning the interests of consumers and mortgage brokers. He added that he believes mortgage brokers are critically important for competition and delivering better consumer outcomes in the mortgage market, noting that almost 60 per cent of all residential mortgages are settled by mortgage brokers.
In declaring the Government wants to see more mortgage brokers – not less, the Treasurer also said ASIC’s 2017 review of mortgage broking remuneration did not identify trail commissions as directly leading to poor consumer outcomes and did not recommend the removal of trail commissions.