While the Labor Party had initially said that it would implement all recommendations of the final report (before the report had been released), the Labor Party has now said that it will implement 75 of the 76 recommendations in full.
The single remaining recommendation, recommendation 1.3, is to be “implemented in a manner that will achieve the objectives set out by Commissioner Hayne,” shadow treasurer Chris Bowen said.
Recommendation 1.3 reads: “The borrower, not the lender, should pay the mortgage broker a fee for acting in connection with home lending.
“Changes in brokers’ remuneration should be made over a period of two or three years, by first prohibiting lenders from paying trail commission to mortgage brokers in respect of new loans, then prohibiting lenders from paying other commissions to mortgage brokers.”
Broker recommendations
Instead, the opposition has said in its response that it has “listened to experts including the Productivity Commission and the Governor of the Reserve Bank of Australia” and “recognises that moving to a customer-pays model in mortgage broking poses real risks to competition in the banking sector”.
It particularly noted that “Commissioner Hayne was clear that there could be competition impacts if recommendation 1.3 was fully implemented hastily”.
As such, it has said that it will:
- Prohibit trail commissions from lenders to mortgage brokers and aggregators on new loans from 1 July 2020.
- Regulate a flat, upfront commission for mortgage brokers that will eliminate the conflict of interest that comes from different lenders offering different commissions.
- Regulate that a commission can only apply to the amount drawn down by the borrower, not the total loan amount.
- Limit to two years the period over which commissions can be clawed back from aggregators and brokers, and prohibit clawbacks from being passed on to consumers.
- Ban campaign and volume-based commissions and payments and other incentives being offered to brokers by lenders.
- Ask the Council of Financial Regulators, along with the Australian Competition and Consumer Commission (ACCC), “to review in three years’ time the impact of the above changes and implications for consumer outcomes and competition of moving to a borrower-pays remuneration structure for mortgage broking, as recommended by the royal commission, and any associated changes that should be made to non-broker facilitated loans”.
Labor has also agreed to introduce a best interests duty for brokers “as a matter of priority”. This obligation will be a civil penalty provision.
Labor will also consult with stakeholders to establish a clear timeline to further align regulation of mortgage brokers with regulation of financial advisers providing financial product advice to retail clients, according to its response.
“The reforms introduced to implement these recommendations will enhance, and not derogate from, brokers’ existing obligations to their clients under the National Consumer Credit Protection Act,” it added.
Compensation scheme
The Australian Labor Party also announced that, if elected, it would establish an independent compensation scheme for victims of financial institutions outside the timelines allowed under current Australian Financial Complaints Authority (AFCA) guidelines.
This new entity would be able to give compensation up to $2 million for consumers and small businesses who suffered financial and non-financial loss and be able to take cases dating back to 1 January 2008.
“Labor will establish a groundbreaking victim compensation package. It’s the courage of victims who have shared their stories that has shown us the need for reform. We must ensure that these victims aren’t left behind as we clean up the sector after a decade of misconduct. Under Labor’s plan, more victims will have the opportunity to pursue a just outcome, and all consumers will benefit from quadrupled AFCA compensation caps going forward,” Mr Bowen said.
As well as this recommendation, other notable inclusions in the Labor response include a wish to abolish the exemption of retail dealers from the operation of the NCCP Act (point of sale exemption) before the May 2019 election if the Parliament was permitted to sit in March 2019. Labor has already tabled a bill in the Parliament to give effect to this recommendation.
Looking at the banking recommendations from Commissioner Hayne, the Labor party largely echoed the government’s response, but took a harder line on recommendation 1.15 regarding an amendment to the law to provide the Australian Securities and Investments Commission (ASIC) with additional powers to approve and enforce industry code provisions.
“Labor will amend the law to ensure that the enforceable code regime recommended by the commissioner is established in full, including remedies as recommended, the power for ASIC to take into consideration whether codes presented to it are appropriately enforceable, and the power for government to establish mandatory industry codes where industry does not present a sufficiently enforceable and comprehensive code.
“The government has failed to commit to implementing the key aspects of this regime. Only Labor will fully implement this recommendation,” the Labor response reads.
When it came to financial advice, Labor also revealed that it would repeal the “safe harbour” provision in section 961B(2) of the Corporations Act unless a future review “identifies a clear justification for retaining it”.
The opposition party would also bring in a speedier ban to grandfathered commissions in advice. While the government had said it would ban them from 1 January 2021, Labor has said it would do this before the May 2019 election if the Parliament was permitted to sit in March 2019.
Otherwise, it would end grandfathering of conflicted remuneration effective from 1 January 2020.
Releasing the response, the shadow treasurer said: “A Shorten Labor government will act faster and go further in standing up for victims of banking misconduct…
“Labor has already announced tough new accountability mechanisms on the banks and regulators to ensure that a further 23 recommendations are implemented in full, as soon as possible.”
He continued: “Labor called for this royal commission, Labor fought for this royal commission, and Labor will work day and night to ensure that we deliver the reforms recommended by the royal commission.”
[Related: Labor proposes to ‘clean up’ banking with new laws]
Annie Kane
Annie Kane is the editor of Mortgage Business.
As well as writing news and features on the Australian mortgage market, financial regulation, fintechs and the wider lending market – Annie is also a regular contributor to the Mortgage Business Uncut podcast.
Before joining Momentum Media in 2016, Annie wrote for a range of business and consumer titles, including The Guardian (Australia), BBC Music Magazine, Elle (Australia), BBC Countryfile, BBC Homes & Antiques, and Resource magazine.
Contact Annie at: annie.kane@momentummedia.com.au
Labor proposes to ‘clean up’ banking with new laws
The major party is proposing to introduce three private member bills into Parliament pertaining to grandfathered commissions, consumer protections and “strengthening” the Australian Financial Complaints Authority (AFCA).“These new laws go towards protecting people against dodgy car loans. They go to protect people against funeral insurance rip-offs. They go to protecting people against poor insurance claims handling,” the opposition leader said.
“Labor has written the laws to start implementing the banking royal commission; it’s now the time for the Parliament to debate the laws and get on with protecting people so no one suffers now because we have a part-time Parliament.”
One of the bills will bring an end to grandfathered commissions after Commissioner Hayne recommended in his final report that they be repealed “as soon as practical” as they have “outlived their validity”.
Labor noted that the major banks had already announced plans to reduce or eliminate grandfathered commissions, but that the industry needs the government to pass legislation that will end the $400 million in grandfathered trailing commissions from leaving the retirement savings of super members every year.
Shadow treasurer Chris Bowen noted the current government’s plan to ban grandfathered commissions by 1 January 2021, saying that Labor could get it done a year earlier.
“We believe it can be done on 1 January 2020, and it can be legislated now. Give people time to adjust. Give people, planners and the financial sector time to implement it,” the shadow treasurer said.
Another bill will seek to strengthen AFCA processes in line with Commissioner Hayne’s recommendation that section 912A of the Corporations Act should be amended to require Australian Financial Services Licence (AFSL) holders take reasonable steps to cooperate with AFCA in the resolution of disputes.
Commissioner Hayne’s final report stated that the Corporations Act mandates the form of AFSL holders’ internal and external dispute resolution systems but did not impose any conduct-related obligations when providing or using those systems.
During the conference on Tuesday, shadow minister for finance, Clare O’Neil, said: “When a consumer has an issue with a financial institution, they can complain through AFCA, as it is known. There is currently no obligation for banks to deal promptly and directly and to provide AFCA with documentation to help resolve customers’ issues.”
The opposition is also looking to remove the point-of-sale exemption for credit sales, such as car loans, that absolves sellers from taking the same steps required by credit providers to ensure customers are financially fit to meet their repayment obligations. It said the removal would make it more difficult for customers to obtain a car loan at a dealership or buy products on credit at a department store.
“We will remove the point-of-sale exemption effectively, requiring people who are selling credit to apply by the normal laws that the community expects credit providers to abide by,” the shadow finance minister said.
Further, Labor is looking to address the royal commission’s concern that certain insurance products, such as funeral insurance, are exempted from the consumer protections outlined in the National Consumer Credit Protection Act 2009.
The exemption currently means the Australian Securities and Investments Commission (ASIC) has no oversight of insurance claims.
“At the moment, ASIC has the power to oversee all of the aspects of the way that insurance is sold – the pricing, the means by which insurance is sold. But the most important part of insurance is the claim. That’s when something goes wrong and how do consumers get dealt with throughout that process. At the moment, ASIC does not have oversight of that,” Ms O’Neil said.
“If an insurance company is doing the wrong thing, if they’re not behaving fairly towards a customer, especially if it is happening at a systemic level, ASIC has no power to do anything about it, and in fact, ASIC has repeatedly asked the government to give them this power.”
[Related: BEAR should be co-regulated, says RC]