Coalition backflips on trail commissions

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In a move that has been welcomed by mortgage brokers throughout Australia, the coalition government announced late Tuesday that trail commissions on new loans would no longer be banned in 2020.

Instead, it will be business as usual, with the Council of Financial Regulators and the Australian Competition and Consumer Commission reviewing the process in three years’ time.

This decision was motivated by the view that mortgage brokers are valuable in generating good consumer outcomes, said Treasurer Josh Frydenberg.

“The Government wants to see more mortgage brokers – not less. [They are] absolutely critical in the mortgage lending market,” stated Frydenberg in a media release.

The initial plan to bar commissions had been met with wide-ranging negativity by the mortgage industry, which questioned the consumer benefits of implementing this proposal.

“Trail commission for mortgage brokers is deeply misunderstood, and is often confused with ongoing commissions earned by other financial services providers,” explained Mike Felton, CEO of the Mortgage & Finance Association of Australia (MFAA).

“However, trail is contingent income that is only paid to a broker if the loan is not in arrears, is not refinanced and does not involve fraud. It is an important control mechanism that aligns the interests of brokers and their customers.”

Mortgage Choice CEO Susan Mitchell added that the home lending market would have suffered a backlash from the elimination of trail commissions.

“Brokers drive competition in the lending market, and maintaining competition in the mortgage industry is of the utmost importance to every borrower in Australia. Proof of this can be seen in [our] residential settlement figures, which show that in the past two years, the big four banks have lost 10% of market share to smaller lenders,” Mitchell pointed out.

“We believe that maintaining trail commission will ensure a strong mortgage broking industry.”

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