An excellent piece from Sam Richardson at MPA.
For the first time in mortgage broking history, a ‘good customer outcome’ has been defined by the industry.
The Combined Industry Forum created the definition as part of wider governance reforms, in response to ASIC’s Review of Mortgage Broker Remuneration.
The CIF defines a good customer outcome as when “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.”
Additionally, lenders will report back to aggregators on ‘key risk indicators’ of individual brokers. These include the percentage of the portfolio in interest only, 60+ day arrears, switching in the first 12 months of settlements, an elevated level of customer complaints or poor post-settlement survey results.
MFAA CEO Mike Felton, who took part in the CIF, told MPA that the definition “it does hold the industry to a higher standard in terms of saying appropriate versus ‘not unsuitable’, but in reality there has been so much change in responsible lending I don’t think it’s going to make that much difference to their current behaviours.
“The regulator has done a lot of research in this area, we are just articulating it…the first time it’s been articulated.”
Not legally binding…yet
According to Felton, the good customer outcome definition will not be applied retrospectively to loans and is not currently legally binding, but will be subjected to an industry code which gives teeth to the reforms.
This has come as a disappointment to consumer advocates, such as CHOICE, which wanted brokers to be legally required to act in the best interests of consumers, in common with financial planners.
The intention of the Combined Industry Forum, however, is for the definition to form the basis for a new system of governance, and become part of licensing conditions. This process of governance will not be in place until 2020.
The first step is for every individual broker to be issued with a unique identifier number, that stays with them throughout their career. MFAA boss Felton told MPA that the being able to track individual brokers would help make governance ‘data-driven’.
Insights from tracking could “provide direction to your monitoring; file monitoring, surveys, mystery shopping. That in turn drives remedial training, education and outcomes, and then reports back to continually improve.”
Felton describes the governance framework as “the centrepiece, the absolute glue, in the reform package.”
Disclosure to customers
Not only will the industry collect far more information about itself, it will also make that information public.
By the end of 2018, brokers will be required to publish to customers the numbers of lenders used in the previous financial year, in addition to the top six years and the proportion of business going to them.
Aggregators will need to provide to ASIC on the spread of lenders being used by brokers, such as brokers using less than 3 lenders or more than eight.
The Combined Industry Forum also calls for lenders to provide ASIC information on the “weighted average pricing of home loans in the previous financial year across their different distribution channels using various standard scenarios.”
