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MFAA Prosper : Mortgage and Finance Brief 09
6 | Mortgage & Finance brief CEO's message The ultimate paradox The stated purpose of the exit fee ban to apply from 1 July 2011 is, in the words of the Treasurer, to encourage borrowers to "walk dow n the street to get a better deal". Lenders will be forced by legislation (or in some cases, already operating of their own volition) to eliminate exit fees, freeing borrowers from any fee constraints on them 'walking'. That is they recognise, begrudgingly or willingly, that some of their borrowers (and if the Treasurer is correct, many more than in the past) may elect to vote with their feet unencumbered by exit fee sanctions. This brings to the fore an interesting and paradoxical interplay with the lender practice of imposing clawbacks on the commissions of brokers whose clients decide to change lenders. While clawbacks have been a feature of the lender/broker relationship for some time, and have been the subject, from time to time, of aggravation from brokers as to the circumstances of their implementation, they assume a higher level of interest and concern when considered in conjunction with exit fees. Clawbacks, clearly have been used as a disincentive to brokers to encou rage bor rowers to switch lenders. In fact they've done more than that. Brokers have been sanctioned when the customer 's decision to switch has had nothing to do with, and in many cases, takes place unbeknow n to, the broker. So we have, on the one ha nd, a Gover n ment-enforced incentive for consu mers to switch lenders and, on the other, a le nde r-enforced disince ntive for brokers to encourage, or even allow innocently, consu mers to switch lenders. The message being sent to brokers is -- 'it's okay to encourage another lender's borrower to come to us, but you will be punished if one of our bor rowers switches to another lender ' (whether or not you were involved)? This contradiction or paradox has the potential to lead to a zero sum game for the industry ... Lender A loses client, claws back broker commission; Lender B gains client, pays broker commission, and so the game goes on ... but to what effect and to whose benefit? Whether this paradox becomes a real issue will be influenced by the number of borrowers deciding to walk. If there are many, the industry will have to deal with the repercussions for brokers sensitively and sensibly. If very few take the 'walk' option (as some in the industry have suggested), one may well ask -- what was the point of the exit fee ban in the first place? • On 6 May 2011, the Senate Economics Committee recommended that the Government reconsider the exit fee ban pending an assessment of the effectiveness of the ban on unconscionable and u nfair exit fees in ASIC Regulatory Guide 220, or alter natively that the ban only apply to Authorised Deposit Taking Institutions. Phil Naylor Chief Executive Officer of MFAA MORTGAGE & FINANCE BRIEF is the official magazine for members of the Mortgage & Finance Association of Australia. Chief Executive Officer: Phil Naylor Executive Director Marketing & Membership: Kriti Colless Marketing & Communications Manager : Marisa Ashworth Post: PO Box 604 Neutral Bay NSW 2089 T: (02) 8905 1300 F: (02) 9967 2896 E: email@example.com W: www.mfaa.com.au Published by: Mahlab Media Managing Director : Bobbi Mahlab Editor : Martin Wanless Sales Director: Nicole Dixon Advertising Sales Manager: Craig Ennis Art Director: Simon Wan G9/1-15 Barr Street Balmain NSW 2041 T: (02) 9818 8896 F: (02) 9818 6080 E: firstname.lastname@example.org W: www.mahlabmedia.com.au Printed by: Webstar Mailed by: D&D Mailing Services Cover photography: James Lauritz All material copyright MFAA. All rights reserved. MFAA does not expect or invite any person to act or rely on any statement, opinion or advice contained in this publication and readers must rely on their own enquiries in making any decisions or giving any advice. Neither MFAA nor any employee or agent of MFAA nor any contributor to this publication will be liable for any loss or damage caused by any inaccurate statement, opinion, advice or information contained in this publication. CAB Member
Mortgage and Finance Brief 08
Mortgage and Finance Brief 10