The danger of BID’s unintended consequences

We are in a privileged and unique position of closely working alongside numerous Finance Brokers, including Mortgage and consumer Asset Finance specialists. In fact, a key reason for establishing SalesKey in 2017 was to service all consumer-focussed Brokers and Aggregators for their compliance support needs, and not just the Mortgage industry which had been well assisted to this point.

We continue to believe passionately in the broader Finance Broking industry and the varying business models out there. In fact, a key approach of ours is to avoid “one size fits all” solutions. When we design compliance support packages, they are customised to the specific Broker’s business model.

With our broad view of the Finance Broking industry, we have a concern that current discussions relating to BID and a potential expansion to all Finance Brokers are flawed and dangerous.

The voice of the smaller Asset Finance broking industry is seemingly not being heard and if plans to extend BID in its current form to all brokers occurs, it will potentially decimate a sub-industry that employees more than 5,000 people and accounts for over $3.5B of personal-use vehicle finance annually.

To put it simply, the broader BID framework and in particular the Conflicted Remuneration Obligation component has not contemplated the commercial model of a consumer Asset Finance lender or broker. As way of further explanation, there is no trail commission involved in a consumer car loan and the only income the broker earns is a small commission paid by the lender for providing the various services to the customer. There is no add on charges for the commission to the customer, but the commission and therefore the customers interest rate can be discounted, where required, at the broker’s discretion resulting in reduced or even zero commission.

Currently BID and the Conflicted Remuneration Obligation means such a transaction must always be fully discounted, meaning the broker writes the loan for “free” which of course is ridiculous considering the amount of work that goes into arranging the loan on the first place and the continued obligation the broker takes on well after the loan has settled.

Under the current obligations the broker acts as the client’s agent; firstly conducting a detailed fact find to fully understand the client’s financial position and then validates all information provided, issues disclosure documents, conducts a Preliminary Assessment and then submits to the lender for approval. All these steps are supported by an extensive compliance framework and very detailed product knowledge, given the variances of the broad asset finance product landscape. A typical consumer asset finance loan requires close attention, prompt action and expertise from the broker. Asset Finance aggregators also play a key role in providing complex Loan Management Systems that assist brokers in making appropriate credit assistance decisions.

If BID and its Conflicted Remuneration Obligation was to be extended in its current state to all products and all Finance Brokers, asset finance specialists will disappear, and consumers will be driven (pardon the pun) to car dealers who operate outside of NCCP and BID legislation or directly to a bank with single product distribution.

Further to the above point, the current application of BID on Mortgage Brokers and all products is equally not fair. Why should Mortgage Brokers be forced to write consumer car loans now for free when other brokers don’t have to?!

So, what’s the solution?
We believe there is a simple solution which is consistent with the origin of the legislation, based on the Royal Commission’s recommendation to strengthen broker conduct in relation to Home Loans, given their size, product choices available, complexity, and importance to the consumer.

To be clear, we support the Best Interests Duty and related Conflicted Remuneration Obligation legislation for Mortgage products, including an extension to non-Mortgage Brokers. However, we do not support BID applying to non-Mortgage credit products, except for when these products are bundled into the same Home Lending transaction.

It is our recommendation that BID legislation be applied to all Finance Brokers BUT it only applies to Home Loan-related transactions.

By making this small tweak to the legislation, it creates the intended consumer protections without the unintended adverse consequences discussed above.
Furthermore, SalesKey does not support the repealing of Responsible Lending guidelines, as currently being contemplated, and instead we believe there is an opportunity to improve them. For the most part, this legislative framework is valuable and can quickly be enhanced if proper consultation occurs and we simplify what is currently in place and create a more focussed emphasis on the key aspect of ensuring brokers and lenders properly assess loan (un)suitability.

As Voltaire once famously said, “Common sense is not that common” but in this case let’s hope the industry can pause, speak to the right people across a broader range of perspectives and find the correct way forward. The Australian people clearly love using brokers, so our legislators need to respect that and assist, rather than impede, this marketplace of mostly small business owners.

SalesKey was founded in 2017 on the idea of empowering and connecting the various participants in the finance industry via compliance and general business support. We are passionate about creating Better Outcomes for this industry and we’ve worked with hundreds of Finance Brokers, Aggregators and Lenders to date.

We continue to raise our voice to assist the market in general and more specifically, we’d love to work with you and your business. To find out more, please call us on 1800 954 488.

Additionally please email us at info@saleskey.com.au for any thoughts on this important topic.

Kind Regards,
Scott, Darren and the SalesKey team.