Call to extend FoFA rules to mortgage sector
The Future of Financial Advice (FoFA) ban on conflicted remuneration should be extended to home loan products, according to the Consumer Action Law Centre (CALC).
In a submission filed with the Productivity Commission (PC) inquiry into Competition in the Financial System the CALC dismissed mortgage industry proposals for change and said “the problem of trail commission remains and upfront commissions continue to encourage brokers to sign up consumers to larger loans”.
“We recommend that the ban on conflicted remuneration introduced under the Future of Financial Advice reforms be extended to home loan products,” the submission said. “The structure of mortgage broker commissions indicates reverse competition, rather than any rationale based on improving outcomes for consumers.”
“The Royal Commission recently heard evidence of the consumer harm caused by conflicted remuneration in the home loan sector. The incentives for brokers and bank staff to engage in irresponsible lending were particularly perverse,” the CALC submission said.
It said the evidence presented to the Royal Commission had also suggested a systemic failure of lenders to manage the resulting conflicts of interest effectively.
“As flagged by the Commissioner during the Royal Commission hearings, currently there is 'nothing in it' for a broker to ensure the customer is facing the truth of his or her expenditure, or to 'interrogate the customer when the customer reports living expenses as X dollars a month’,” the submission said.
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