The “Don’t Kill Competition” ad that hit TV screens on Sunday night features a young family walking down an ominous hallway as they are “locked out” by various banks, before coming to a door labelled “high interest rate lender”.
The Mortgage and Finance Association of Australia, which represents more than 13,500 brokers, created the ad as part of a massive lobbying effort against sweeping changes to the industry’s revenue model.
In his final report released last week, Commissioner Kenneth Hayne QC called for a shift to a fee-for-service structure, where the borrower pays the mortgage broker a fee for arranging their loan, as opposed to the current system in which brokers are paid commissions by the lender.
Mortgage brokers say the changes, which have largely been accepted by the government and the opposition, will destroy the industry and lead to higher costs for borrowers. Consumer groups have described those claims as a “scare campaign”.
“It is absolutely not a scare campaign,” said MFAA chief executive Mike Felton.
“We’re highlighting the critical role that brokers play in driving competition, choice and access to credit. We also want to highlight (that the changes) challenge the viability of the mortgage broking channel and the impact that would have on consumers.”
“We think this is a particularly good outcome for the major lenders but a particularly poor outcome for consumers.”
The MFAA also cites a recent study from Momentum Media that found 96 per cent of mortgage broker customers were happy with their experience. That same survey, however, found a similar number would be unwilling to pay an upfront fee.
“Only 3.5 per cent said they would be willing to pay the equivalent of an advance upfront fee of $2000 or more,” Mr Felton said.
“If only 3.5 per cent are willing to support the channel post this type of reform, then clearly the channel will be devastated. As to what figure (will go out of business), who knows. It would be severe.”
“We’re just left to pick up the pieces. We know no detail. It’s easy for a High Court judge or a banker to come up with these ideas, but we are the engine room of the economy. We pay tax, we hire locals.”
He said even if he wanted to sell his business now it was “worthless”. “Who would buy it? There’s so much uncertainty,” he said.
“I know there are people in the industry in their 50s who were getting ready to sell after building up an incredible asset, after 20 years of providing great outcomes for their clients, that are now locked into their business.”
“It looks like we’re going to be used as political fodder in the upcoming election campaign. Labor won’t commit to mortgage brokers, the Liberals say they’ll support us but want to limit how much we can earn.”
“Loans didn’t used to be sold, they were applied for, and household debt was a small part of the economy. It was only the corporate types who borrowed too much.”
“Marketing credit is one of the main reasons the banks lost their way — it fundamentally corrupted their sense of duty and risk,” he said.
“It is simply not possible to maintain a sense of responsibility to customers and proper risk assessment if you’re desperately trying to sell something to them and earn a commission to feed your family. In short, paying sales commissions for loans is a shocking idea and should never have been allowed.”
Treasurer Josh Frydenberg says he will consider the implications of the recommendation before any decisions are made.