Banking system uncompetitive and mortgage broking review needed: Senate inquiry submissions

Second-round submissions to an inquiry into the banking system have challenged findings that the system is competitive and called for a review of mortgage broking practices to ensure consumers are getting quality advice on home loans.

The Financial System Inquiry released its interim report in July, calling for further input on a range of questions, including whether bank ownership of mortgage brokers was restricting competition.

Second round submissions were published on Friday.

The Mortgage and Finance Association of Australia challenged the report’s finding that the banking sector was “competitive, albeit concentrated”, noting that the financial crisis and government intervention had restricted competition.

However, the MFAA said there was no evidence that bank ownership of mortgage broking groups was limiting competition or discouraging brokers from acting in the consumers’ interest.

The MFAA argued that the National Consumer Credit Protection Act, 2009 required brokers to disclose commissions and lender panels and ensure clients were not disadvantaged by any conflicts of interest.

Suncorp disagreed, arguing that bank ownership of mortgage brokers was distorting the way in which mortgage brokers directed borrowers to lenders.

“Of great concern is the fact that customers view brokers as independent but the major banks have growing influence over these channels which they now predominantly own, and coupled with generous incentive schemes, are able to direct business to their products,” Suncorp said in its submission.

Consumer group Choice called for a review of how mortgage broking regulations were working for consumers including an assessment of the impact of mortgage brokers’ remuneration and institutional arrangements on the services they offered. It also called for an investigation into whether more extensive rules about the quality of mortgage broker recommendations and disclosures were required.

Choice said conflicts of interest reduced the quality of mortgage brokers’ recommendations and service for consumers.