Mortgage brokers forced to reveal commissions from October 2

Mortgage brokers will be required to disclose commission payments, fees and charges to their prospective clients from October 2 under new rules issued by the Australian Securities and Investments Commission.

Upfront and monthly trail commissions are paid by lenders and are the bread and butter of mortgage brokers’ income, though some also supplement their income with fee-for-service charges.

The new rules will mean that commission payments must be declared as part of a “credit guide” provided when brokers first meet with prospective customers.

Brokers must also list the six lenders they conduct the most business with, disclose whether commissions to third-party referrers will be paid, and make a statement on volume bonus arrangements.

Some lenders pay brokers bonus commission payments if they submit a target number of loans over a set period of time.

The credit guide must also include the following information: 

• The broker’s name, contact details and Australian credit licence number or credit representative number;
• information about their procedure for resolving disputes with a consumer, including contact details to access:
• their internal dispute resolution (IDR) procedure; and
• the external dispute resolution scheme (EDR) of which the broker is a member.

Brokers that operate under their own Australian Credit Licence will also be required to disclose commissions in a “proposal document” given out at the time the loan is to be arranged.

Brokers who act as credit representatives are only required to provide a credit guide, while those that operate under their own licence must provide four documents, the others two being a quote and a written assessment. 

The four documents that licensed mortgage brokers must provide are: 

• A credit guide - A credit guide provides preliminary information about you to a consumer. The time at which you have to provide a credit guide will depend on what type of entity you are and what credit activities you engage in, but will generally be before you engage in credit activities with the consumer. 

• A quote - A quote tells the consumer the estimated cost to them of using your services, if you charge the consumer a fee. Before you provide credit assistance, you must give a quote to a consumer, the consumer must have accepted the quote by signing and dating the quote and you must give the consumer a copy of the accepted quote. 

• A proposal document - a proposal document sets out the costs to the consumer of using your services, including any commissions you may receive. You have to give a proposal document at the same time you provide credit assistance to a consumer. 

• A written assessment - this is a preliminary or final written assessment that a credit contract or consumer lease is “not unsuitable” for the consumer. You are required to give a free copy of the written assessment to the consumer if they ask you for one within seven years of entering into the credit contract (if you are a credit provider) or of the date of the quote (if you are a credit assistance provider).  You are not required to give a written assessment to a consumer if the credit contract or consumer lease is not entered into or the credit limit is not increased (if you are a credit provider), or if you do not provide credit assistance (if you are a credit assistance provider).