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The Six Principals for Good Consumer Outcomes by the CIF

By December 1, 2017 Blog No Comments

Broker remuneration is often based on consumer satisfaction. Why? Because confidence in mortgage brokering is imperative for the industry to survive and thrive. The CIF, Combined Industry Forum, responded to Treasure with six principals and the definition of “good consumer outcome” that is now the industry standard.

This proposal is considered a landmark reform package designed to enhance consumer outcomes and boost confidence in mortgage broking.

The CIF paper has not been released in its entirety, but it does respond to the proposals the ASIC’s Review of mortgage broker remuneration outlined. It takes into consideration third-party, expert recommendations of the ABA’s retail banking remuneration review.

The CIF has agreed to the six principals that focus on ensuring improved consumer outcomes and higher standards of conduct and culture in the industry, while maintaining the competitive edge for mortgage brokering.

The Six Proposals

As provided by the Combined Industry Forum and The Adviser:

  1. The standard commission model will avoid financial incentives that encourage consumers to borrow more than they need, or will use (i.e. by basing commissions on facility draw-down net of offset.
  2. Volume-based and campaign-based commissions paid by lenders and aggregators are recognised as raising potential conflicts of interest and poor customer outcomes and are expected to cease.
  3. Non-monetary benefits will only be given based on a balanced score card and good customer outcomes, and benefits given by lenders will be capped.
  4. Ownership models and commercial relationships will be made clear on all marketing materials, including websites, where ownership is greater than 20 per cent, so consumers have the right information to make informed choices.
  5. ASIC and consumers will be given clearer information on where loans are written, commissions paid and interest rates to increase transparency and accountability in the industry.
  6. The industry will introduce an improved Governance Framework that monitors for, and identifies risks, and requires the industry to take action and continuously improve where issues are identified.

For the first time, this industry now has a standard definition for “good consumer outcomes” as part of these reforms. The definition for this standard includes looking at the size and format of the loan, individual consumer needs, accountable lending requirements and loan affordability.

The official definition: “The customer has obtained a loan which is appropriate (in terms of size and structure), is affordable, applied for in a compliant manner and meets the customer’s set of objectives at the time of seeking the loan.”

Anthony Waldron, the chairman of the Combined Industry Forum, stated that the release of said report was a significant milestone, which makes clear the foundations for this industry’s improved transformation.

Waldron said, “We are genuine in our commitment to not only meet the proposals put forward in ASIC’s Review of mortgage broker remuneration, but to raise the bar on the expectations of stakeholders from all corners of the industry. We hope to lead by example by taking a proactive position in those areas where our industry has the opportunity to deliver even better customer outcomes.”

Mark Haron, the CIF deputy chairman expanded on Mr. Waldon’s statement, “For a diverse range of key stakeholders to come together to deliver a meaningful package of industry-led reform is unprecedented in the financial services sector. The mortgage brokering industry introduced true competition to Australia’s lending landscape and this, in itself, has delivered vastly better outcomes for consumers. With that said, there will always exist areas for continued improvement in any industry and the measures set out today mark an important step in setting a new and superior standard in mortgage brokering”

Deputy CEO Diane Tate of the Australian Banker’s Association, in agreement stated, “We have put customers a the centre of this important package of reforms. The industry will be holding itself to a new standard, set higher than the law requires, when assessing good customer outcomes. The banking industry is committed to implementing this reform package and to monitoring the impact of the reforms to ensure they are delivering benefits for customers.”

Two more broker association executive heads also chimed in to these new industry reforms as follows.

Mike Felton, MFAA CEO – “It has been tremendous to be part of an industry that has united in its commitment to ensuring that broker remuneration is targeted at promoting strong consumer outcomes and the sustainability of our industry. It is a credit to all industry participants and representatives that they have embraced the task of self-regulation and delivered this suite of genuine reforms in such a timely and comprehensive manner.”

Peter White, FBAA executive director – “The undertakings and endeavours of the Combined Industry Forum have benn and extensive exercise in co-operation and mutual respect between those who are not always necessarily aligned on matters. It has been a rewarding time to see how we as an industry and competitors can work together for the good of an industry we hold dearly, and to ensure good consumer outcomes are continued to be maintained by our actions. It is an honour to be part of this group, and the journey will continue into the future as we continue to work with government and our regulators on these outcomes.”

CEO Helen Gordon, on behalf of the AFIA (Australian Finance Industry Association), said, “Our members are focused on financing Australia’s future, including for home ownership and investment. Mortgage brokers play a pivotal role in facilitating consumer choice and access to that finance. AFIA has welcomed the opportunity to work through the Combined Industry Forum with key industry players to propose action to address consumer risk areas raised by ASIC, while enabling home buyers to continue to have access to a competitive mortgage market”

This process isn’t complete, and the CIF will continue their evaluations and regularly report on the ongoing processes to the Treasury, the government, and the ASIC.

First Choice Mortgage Brokers are a Sydney Mortgage Broker operating under the Australian Credit Licence Number: 382370