Arranged Marriages
Sydney Morning Herald
Wednesday April 30, 2003
Mortgage brokers need reform but it requires political will, reports Tim Dick.
Australians are increasingly turning to mortgage brokers to arrange their home and investment property finance.
However, a recently completed study into the industry by the NSW Consumer Credit Legal Centre, sponsored by the Australian Securities and Investments Commission, reveals a litany of poor practices - from excessive fees and failure to disclose fees and commissions, to arranging mortgages that their clients cannot afford. Phil Naylor, head of the Mortgage Industry Association of Australasia (MIAA), which represents mortgage brokers, plays down the report, saying it contains nothing new. "We were aware of the practices [referred to] in the report," he says.
He says of the 150,000 to 200,000 mortgage transactions each year, the problems number in the hundreds.
MIAA members have a code of practice that requires them to recommend only appropriate finance, and to disclose fees and conflicts of interest. It also requires members to co-operate with the MIAA's ombudsman scheme for complaints.
Naylor says these best practice guidelines have "worked well" but they don't apply to people who are not members of the MIAA.
However, the managing director of Aussie Mortgage Market, John Symond, says the industry cannot be left to regulate itself, but "we don't want over-regulation".
Symond says there is a "significant number of brokers who are acting for lenders ... They say they've got dozens of products but [are] really out to sell only one or two products."
Symond also thinks referral or spotters' fees need to be disclosed. He says the proposed legislation in NSW to force brokers to disclose referral fees is a big plus for consumers.
The Consumer Credit Legal Centre's co-ordinator, Karen Cox. agrees that self-regulation has not worked. But she is not sure where the report's recommendations will go. "I do not really know who is going to lead the reforms," Cox says. "Clearly, there is a lot of impetus from consumer organisations and industry, but it would take a fair amount of political will to pull together a uniform state response."
Indeed, the report says: "Reform of the industry will only be effective where it takes place on a national basis. The alternative, of individual jurisdictions adopting different levels of regulation, is deeply flawed."
The Federal Government says it does not have the constitutional power to regulate mortgage brokers, so for a national response, the states and territories have to co-operate.
Cox believes the Uniform Consumer Credit Code model "could work but [there's] a limit as to how far it can go because it regulates a product", rather than the brokers themselves.
The code was set up at the instigation of the Federal Government to get the states and territories to co-ordinate consumer credit laws.
CAUTION NEEDED
"Consumers need to know how brokers are being paid, who's paying them and how much they're being paid," says the Australian Consumers Association's finance policy officer, Catherine Wolthuizen.
Consumers should compare quotes and "stick to what they can afford", rather than taking out the amount they qualify for, she warns.
Karen Cox says: "Don't tell any lies on the application, even if you are encouraged to do so." The bottom line, she says, is that "you cannot assume [brokers] are going to give you comprehensive, independent advice".
Check Cannex (www.cannex.com.au) and Infochoice (www.Infochoice.com.au) for mortgage interest rates.
THE RECOMMENDATIONS
Make brokers inform consumers of their direct and indirect costs in dollar terms.
Cap brokers' fees and commissions.
Disclose brokers' commissions, the range of lenders used and any conflicts of interest.
Ban incompetent, unfair or dishonest brokers.
Ban "instant loan approval" advertisements to vulnerable people.
Stop brokers evading consumer protection laws by disguising mortgages as business-type loans.
Require a reasonable basis for recommending a credit product.
Make lenders responsible for poor advice by brokers in some circumstances.
Improve complaints and compensation mechanisms.
© 2003 Sydney Morning Herald
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