Intense lobbying from well-connected mortgage-broker firm owners, and the government’s capitulations to their demands, have left democracy and customers in a worse state, Australia’s peak consumer group says.
After committing to banning trailing fees from 2020, a key recommendation of the Hayne royal commission into the banking and financial sector, Josh Frydenberg announced a backdown on Wednesday.
Instead, the government intends to review trailing commissions – where banks provide mortgage brokers an on-going fee for the life of the consumer’s loan – in three years’ time.
Frydenberg claimed the reversal came after considering the “impact on competition in the mortgage-lending market”.
But many critics have pointed the finger at the intense, and co-ordinated, lobbying campaign orchestrated by mortgage brokers for the sudden about face, just weeks out from the election campaign.
Choice spokesman Jonathan Brown said consumers would be the losers, with Kenneth Hayne having made the recommendation for a reason.
“Commissioner Hayne warned us about industry lobbying in his final report,” he said. “He told us the industry would cry ‘unintended consequences’ and try to water reform down.
“Unfortunately Hayne’s prediction was right, and the mortgage broking lobby threw money at the problem and got on the phone to their political mates.
“Every time a government or a regulator tries to implement meaningful reform in financial services, lobbyists swoop in to Canberra and try to kill it off.
“The wealthy and well connected mortgage broking lobby are arrogantly crowing about killing off reform and our democracy is worse off for it. Canberra has failed a really key test out of the banking royal commission.”
The Mortgage and Finance Association of Australia chief executive, Mike Felton, did not respond to media requests, with his spokesman instead forwarding the press release it released at the time of Frydenberg’s announcement.
“[The] announcement reflects the fact that the case for the removal of mortgage-broker trail commission has not been made, nor has it been demonstrated that existing trail arrangements lead to poor customer outcomes,” Felton said in his statement. “It is also backed by commentary from both Asic and the Treasury that suggests that consumer outcomes could in fact be worsened in the absence of trail with the possibility of increased churn, reduced quality and heightened conflicts.”
The Australian Financial Review reported Apprentice Australia host and home loan mogul Mark Bouris, whose business makes millions from trail commissions, personally lobbied the prime minister, Scott Morrison. Campaign tactics included phone calls to federal MPs offices, emails and town hall meetings.
MPs spoken to by Guardian Australia reported seeing mortgage brokers “almost everywhere you turned”, with brokers appearing at community events, including outdoor movie screenings, fetes and train stations, to talk to their local MP.
The Brisbane Liberal National party MP Trevor Evans said he understood the campaign, which began well before Hayne handed down his final report.
“I was at the ACCC back when the big issue was banks could just refuse to deal with mortgage brokers,” he said. “I understand the competition policy aspects, and I understand why it is important to keep focus on competition in the bank sector.
“Competition is one of the big issues with the retail banks and, if the mortgage-broker model was to suffer, there is no doubt the big banks would consolidate their hold on the mortgage market even further.”
The LNP MP Keith Pitt, whose electorate of Hinkler sits in one of Queensland’s major regional centres, said he too received visits from both individual businesses and lobbyists but that he understood the urgency.
“They are basically small businesses that have worked their pants off to be successful and were at risk of losing everything,” he said.
Labor MPs also reported lobbying. After originally saying it would accept all of Hayne’s recommendations, Labor settled on abolishing trail commissions, and setting a flat rate for commissions, no matter what the size of the loan, baulking on going all the way through with the “user pay” recommendation Hayne had put forward.
Mike Freelander, the Macarthur MP who last month urged caution in Labor’s response to the banking royal commission, said he had been driven to speak by memories of the bank monopoly on home loans.
“They admit there were some problems with their business practices but, I think, with all the Hayne recommendations there is a danger we could be reducing, rather than increasing competition and that is the point I was making in caucus,” the Macarthur MP said.
“Has there been lobbying? Absolutely. Mortgage brokers have all been to see me and I try to meet with them all … mostly it was individual businesses. We actually have a lot of mortgage brokers in my electorate.
“I understand the whole nature of the trail commissions, I think they are a very vexed issue and I think there is more discussion to be had, but I really think that Chris Bowen, that Jim [Chalmers] and Clare [O’Neil] have come out with a good response.”
Mortgage brokers, which account for just 16,000 businesses in Australia, are well known in local business communities, and are seen as influential, particularly in Liberal electorates.
In December, the industry publication the Adviser wrote about an event attended by the assistant treasurer, Stuart Robert, and the LNP Queensland MP Andrew Wallace, to hear concerns from the local mortgage-broking industry.
SMS Finance director and finance broker John McNamara told the publication he had been put at ease by Robert, who told him he “didn’t see that broking needed to change or that trail needs to be dramatically changed for mortgage brokers”.
“I feel a lot more comfortable that our trail commission is somewhat safe and that these changes may not be as dramatic as we were worried about after [Commonwealth Bank chief executive] Matt Comyn’s piece at the royal commission.”
Speaking on the policy reversal on Thursday, Morrison did not address the lobbying campaign, saying it was about “basic fairness and sitting down and consulting with the industry”.
“It’ll be looked at again in three years and we’re backing the mortgage brokers in, because, because they back the mortgage owners in – those looking to buy a home and get the best deal out of their mortgage. Labor wants to pull the rug out from under them, so I think mortgage brokers and those who rely on them can have a very clear choice: we’re backing the mortgage brokers, Labor is backing the big banks.”