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”.
A banker bathed in red light and shrouded in smoke opens the door as the voiceover warns, “Without mortgage brokers you could pay more while the banks profit.”
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.”
In his report, Mr Hayne suggested that if brokers begin charging large upfront fees, “it may be” that banks should also be forced to charge a fee “to create a level playing field”.
“Whichever way you look at it, it is simply a new, multi-thousand-dollar effective tax on borrowing that the customer is going to have to pay, rather than the lender,” Mr Felton said.
“We think this is a particularly good outcome for the major lenders but a particularly poor outcome for consumers.”
As part of its lobbying campaign, the MFAA is highlighting a number of data points that suggest the industry does not have “systemic issues at its core”.
For example, out of more than 6500 complaints received by the newly formed Financial Complaints Authority in its first month, fewer than 0.5 per cent were related to mortgage brokers.
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.”
Mr Felton said he was hopeful the industry would be able to change the government’s mind before it implemented the changes.
“We have strong support from bodies such as the Productivity Commission, Treasury, ASIC and the RBA and strong reform from within the industry,” he said.
“That is a compelling case of the industry that is addressing conduct and culture from within and has made significant progress in reforming.”
Sunshine Coast-based Mortgage Choice franchisee Gordon MacVicar said if the changes went ahead, he would effectively be forced out of business.
He said many in the industry were “on the verge of a breakdown”. “He’s dropped a hand grenade and walked away,” he said, referring to Mr Hayne.
“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.”
Mr MacVicar, who has been operating for three years and has more than 1000 clients, said he was still paying off a fit-out loan and a business loan. He has to sign a new three-year lease in November.
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.”
Mr MacVicar said his office originated 150 loans last year. “That’s 150 consumers that are going to be driven to the big banks and their branches,” he said.
“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.”
Naturally, not everyone agrees. In a scathing opinion piece for The Australian on Monday, finance commentator Alan Kohler argued “we would be better off without mortgage brokers”.
“The real problem as I see it is that mortgage brokers represent the epitome of marketed credit, which has become Australia’s greatest economic scourge,” he said.
“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.”
Kohler said marketed credit was to blame for skyrocketing house prices that forced the regulators to step in and impose a credit squeeze, that in turn was now affecting the wider economy.
“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.”