The Federal Government has back-flipped on implementing the banking royal commission’s recommendation that commissions in the mortgage broking industry be abolished.
The final Hayne report recommended commissions be paid in upfront fees by customers rather than the banks.
Despite earlier saying they would implement the recommendation on trail, and despite the upcoming election, after lobbying from the industry the Federal Government has decided to keep upfront and trailing commissions for mortgage brokers for at least the next three years.
Mortgage brokers and high profile industry types like Mark Bouris have been lobbying the Government since the report, saying cutting commissions would destroy up to 70 per cent of brokers’ careers.
The Government responded by putting in the three-year hold and says there’ll be a review by the Australian Competition and Consumer Commission and the Council of Australian Financial Regulators.
Unsurprisingly, mortgage brokers are rejoicing at the news.
“I think that both parties recognise the research that’s been done which would imply that consumers are not willing to pay the level of fee with keeping a viable broker channel,” Mortgage Choice’s Susan Mitchell told the ABC.
“Therefore, if you were to move that smaller fee, you would move to an anti-competitive position.”
Associate Professor Michael Rafferty, from RMIT, says the decision is big but isn’t surprised.
“The financial services sector is the most powerful lobby group in Australia and it’s heavily ingrained with both major political parties,” he told the ABC.
Treasurer Josh Frydenberg says the Government made the backflip out of fears the changes would be counter-productive and would actually reduce competition for consumers.
“The abolition of trail from July 2020 won’t proceed as first announced,” Mr Frydenberg said.
“The reason is, we’re concerned about the impact on competition in the mortgage lending market.”
“Small lenders and mortgage brokers are an absolutely critical part of competition in that market.”