“Misconduct will be deterred only if entities believe that misconduct will be detected, denounced and justly punished.”
With Labor giving in-principle support to adopting all the recommendations, the political flashpoint could be mortgage brokers.
One of the five recommended cages to the sector is that the borrower, not the lender, pay the broker the fee for arranging a loan. These changes should be made over two-to-three years, first by banning trail commissions paid to brokers, and then other commissions.
But Mr Frydenberg argues this could decrease competition and strengthen the hand of the banks.
“The Government recognises the importance of competition in the home lending sector and will proceed carefully and in stages, consistent with the recommendation, with reforms to ensure that the changes do not adversely impact consumers’ access to lenders and competition in the home lending market,” he said.
He said from July 1, 2020, the government would ban trail commissions for new loans and limit the value of upfront fees to amount drawn down by borrowers and not the loan amount.
While it will not require borrowers to pay the fees, there will be a review of the above changes in three years which will also look at whether the borrowers should pay the fees.
In his report, Commissioner Hayne argues consumers are in the dark over arrangements between brokers and banks and it leads to dishonest conduct.
“The lender is isolated, even insulated from what he intermediary does with the borrower,” the report says.
It says paying a broker once a loan was approved has led to cowboy conduct, such as lending people loans they cannot afford.
“It is in the broker’s financial interests to have the lender approve the loan”‘ the report says.
“Both the NAB Introducer home loans and the Aussie Home Loans broker misconduct case studies showed, payments by banks to intermediaries have induced some to engage in other forms of dishonest conduct.”
Before the report was released, the government warned repeatedly it would balance recommendations for a tougher regulatory framework against the need to ensure there was a free flow of credit, which Mr Frydenberg called the “lifeblood of the economy”.
But Commissioner Hayne said his concern was that the rules and an ethical lending culture were followed and enforced, and he did not believe this should pose a threat to credit flow.
“If this results in a tightening of credit, it is the consequence of complying with the law as it has stood since the National Consumer Credit Protection Act came into operation,” he concluded.
He agreed “the housing market has the capacity to absorb some adjustment in the application on lending standards necessary to meet the requirements of existing (responsible lending obligations without imposing unwarranted risks to macroeconomic outcomes”.
He further argued that argued compliance would “enhance rather than detract from macroeconomic performance”.
The government adopted all Commissioner Hayne’s recommendations regarding better regulation and has promised more money for them in the April 2 budget.
A key recommendation was to establish a new, independent oversight authority for the regulators .
It would report to the government every two years.
The government also agreed to recommendations that its Banking Executive and Accountability regime – legislation Scott Morrison introduced when he was trying to ward off a banning royal commission – be extended to all APRA-regulated services, including the superannuation sector, as well as the regulators themselves.
The government said this recommendation showed the government was on the right track when it announced BEAR when under political pressure to call a royal commission.
from Just News Viral http://bit.ly/2WERrxe
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