First published 27 August 2019
Yesterday, the Government released the draft National Consumer Credit Protection Amendment (Mortgage Broker) Bill 2019 and draft Regulations. This draft Bill is in response to recommendations made by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
This scrutiny of our industry and changes to regulation are to be expected, given the Royal Commission recommendations, and the fact that mortgage brokers originate almost 60 per cent of all mortgage lending in Australia. The mortgage broking industry is now systemically important to the Australian economy, so it is appropriate that our practices will be regularly reviewed by government and regulators. The MFAA has engaged with Treasury directly and with the Combined Industry Forum (CIF) throughout the development period of the draft legislation. This exposure draft Bill seeks stakeholder views on the draft legislation, the regulations and the explanatory materials around the proposed reforms.
The MFAA has reviewed the legislation and is now receiving appropriate legal advice to assist in fully determining the impacts and potential unintended consequences.
We are in the process of arranging broker regulatory roundtables to talk through any potential unintended consequences identified and to garner further broker feedback. Aggregators will also be consulted through the MFAA’s National Aggregator Forum. As we gather feedback we will be consulting with Treasury on any concerns and the MFAA will be making a written submission to Treasury by 4 October 2019.
The reforms proposed follow the ASIC Remuneration Review, Productivity Commission Review and Royal Commission. In many cases, they are giving legislative effect to reforms already implemented by the CIF.
The key issues covered by the draft legislation are outlined below.
The Exposure Draft Bill – Overview
The Government has designed this draft Bill to require brokers to act in the best interests of consumers at all times and to address conflicted remuneration for mortgage brokers and mortgage intermediaries such as aggregators.
The stated intent of these new laws is to seek to protect and even improve consumer outcomes by enshrining in legislation the requirement for brokers to always act in the best interests of their customers, and by reducing the potential for conflicts of interest to arise as brokers provide their services.
The key elements of the Bill are as follows:
• Mortgage brokers must act in the best interests of consumers when providing credit assistance, in relation to credit contracts. Where there is a conflict of interest, mortgage brokers must give priority to the interests of their customers.
• The value of upfront commissions will be linked to the amount drawn down(net of offset) by borrowers instead of the loan amount.
• Campaign-based and volume-based commissions and payments will be banned.
• ‘Soft dollar’ benefits will be capped and clear regulation applied to activities that constitute these sorts of benefits, such as entertainment and legitimate educational activities.
• The period over which commissions can be subject to clawback from aggregators and mortgage brokers will be limited to two years, and passing the cost of clawbacks on to consumers will be prohibited.
The reforms are scheduled to take effect on 1 July, 2020.
The Consultation Process
Following the public release of the draft legislation, the MFAA has been working with our state-based Business Development Managers (BDMs) to convene broker regulatory roundtables in major metropolitan centres around the country over the coming weeks with dates to be released imminently. We will also be discussing the draft legislation at our next Aggregator Forum meeting. This will allow us to work through the detail with brokers and aggregators, so we can respond appropriately in our submission to Government.
We will continue to engage with Treasury throughout the process to ensure we clearly understand the objectives of each of the draft regulations, and to ensure potential unintended consequences are resolved by policy-makers.
The MFAA will then deliver our submission prior to the 4th of October, and continue our engagement throughout the legislative process.
We will continue to keep you updated throughout this process.