Changes to the way everyday Australians secure a mortgage, bans on hawking insurance policies and more disclosure on fees customers can be charged have all been proposed in a damning report from the banking royal commission.
Commissioner Kenneth Hayne offered 76 recommendations in his final report, with the Federal Government and Labor saying they will support and implement all of the changes – at least in part.
To make things easier to understand, nine.com.au has broken down the recommendations that will have the greatest impact on the lives of everyday Australians. Here’s what you need to know:
Mortgage brokers may lose incentives to offer larger mortgages so they receive bigger financial kickbacks under recommendations which tackle the issue of responsible lending.
The recommendation would see home loan customers forced to pay a mortgage broker an upfront fee to wipe out conflicted commissions.
Currently the lender pays the broker both an upfront and trail commission when they sign up a customer to their banks. Mr Hayne said removing commissions from lenders will create a “level playing field between banks and brokers”. He also called for a treasury-led group to oversee the remuneration model and fees.
Deloitte Access Economics partner Dr Pradeep Philip said the recommendation would ensure mortgage brokers help Australians navigate the home loan market without having to worry about their motives.
“More than half of the country’s homes loans are done through mortgage brokers and the model is they get paid by institutions,” he said.
“The problem is it’s assumed the mortgage broker is acting in the best interest of the customer. What we have learnt is there is not always enough transparency to be clear about this.
“To address this transparency, the borrower will pay upfront to put onus on the broker to serve the person who paid them.”
The report called for people to only have one default superannuation industry account and a ban of advice fees on MySuper accounts. It also called to stop the unsolicited sale of superannuation.
Dr Philip said these recommendations will stop super funds earning money through fees from unnecessary accounts created every time someone changes a job.
“Every time you change a job and setup a new fund, there are generated transaction costs. If you do this multiple times you will have so many fees taken out it’s not worth it,” he said.
He added millennial would benefit most from being “stapled to a default super fund” because they are most likely to have multiple jobs across multiple industries.
The report also called for the banking executive accountability regime (BEAR) to be applied to the superannuation sector to govern who is responsible should an issue arise.
The report also calls for a ban on cold calling customers to hawk insurance, with the government throwing its support behind the recommendation.
Treasurer Josh Frydenberg said “the sale knowingly of worthless insurance policies” earning the banks “hundreds of millions of dollars in fees for no service” was one of the more damning aspects of the industry.
Proposed changes would see the customer no longer held to a strict “duty of disclosure” which gives insurance companies the right to refuse a payout if a customer made an honest mistake in forgetting to declare something when signing up.
The life insurance industry also came under attack for its continuing culture of putting profits over people. Mr Hayne called on ASIC to lower commissions for selling life insurance products, with hopes to eliminate them all together.
Car dealers will face a cap on commissions for add-on insurance sales, meaning they will no longer be exempt from national consumer credit protection laws.
Dr Philip said there are multiple case studies where insurance was pushed onto people who didn’t need it or couldn’t afford the service and he believes reducing commissions would address this.
“Institutions will be warier of cross-selling and more responsible about what they push,” he said.
VICTIMS OF DODGY FINANCIAL PRACTICES
Consumers and small businesses who have been failed by financial firms will have their opportunity to have their cases heard under a so-called compensation scheme of last resort.
The scheme will pay compensation to consumers if a tribunal rules in their favour but they unable to get compensation from the financial firm responsible in cases where the firm has become insolvent.
The scheme would be funded by the industry itself.
Dr Philip said while the exact details of this plan are still being worked through, it will be a welcomed fix for “systematic problems that have left people high and dry”.
He added forcing the industry to pay for the scheme would hopefully “change the culture and make the customer the centre of the business model”.
The Government said it will pay $30 million to about 300 consumers and small businesses for unpaid determinations from previous cases.
Default interest to be waived on loans in areas affected by drought and natural disaster under the recommended changes. (Supplied)
Those who work in the agricultural sector will also benefit from the recommendations, with Hayne calling for default interest to be waived on loans in areas affected by drought and natural disaster.
The report has also called for independent assessments of the value for land and agricultural holdings in cases where the client has an outstanding loan with a bank. As it currently stands the value is determined by the bank who will reposes the asset should the farmer not be able to repay the loan.
Commissioner Hayne also called for financial advisers with a working knowledge of the agricultural sector act as mediators when a farmer struggles to repay debt because of natural disasters, arguing current mediation practices don’t offer realistic repayment schemes.
The report recommends financial institutions provide customers with information regarding the services to be received and total fees to be charged in writing every year.
It also called for the banning of dishonour fees on basic accounts and for the scrapping of overdrafts in these accounts unless they have been agreed to by clients.
If a business if offering financial planning discovers misconduct, they would be required to inform clients and compensate them promptly under the changes.
Mr Hayne also demanded banker salaries to no longer linked to shareholder returns, warning it encourages bad behaviour “driven by the pursuit of profit”.
This article appeared on 9News.com.au on 5 February, 2019.
View the original article here.