Ban on commissions paid to brokers under overhaul of consumer laws
COMMISSIONS paid to mortgage and insurance brokers would be banned and other agents forced to disclose their third-party payments under proposed overhauls of State consumer laws.
NSW
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MORTGAGE brokers would be banned from receiving monthly commissions from banks which can go on for decades and earn them thousands of dollars, under a shake-up of state consumer laws.
These so-called trailing commissions, paid for signing up a client to a home loan, would also be stamped out in the insurance industry as the state government tackles financial incentives paid to third parties.
The proposed laws would also force businesses like travel agents, accountants and product comparison websites to disclose financial incentives for recommending a product or service.
State Better Regulation Minister Matt Kean said the proposal was aimed at putting the power back into the hands of consumers while removing red tape for business and boosting transparency.
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Other changes include requiring funeral homes to publish fees and charges on their websites to avoid grieving family members from having to call to be able to compare prices at an emotional time.
Retailers offering extended warranties on goods would also be required to disclose to consumers of the fact they might already be protected under Australian Consumer Law.
“We’re looking at ways to cut down on red tape so businesses have every opportunity to thrive in NSW,” Mr Kean told The Sunday Telegraph.
“At the same time, I want to put power back in the hands of consumers, which is why this plan also suggests ways to give people more information and more choice when it comes to where they spend their hard-earned cash.”
More than half of all home loans taken out in Australia are organised through a mortgage broker.
While some brokers receive an upfront, one-off payment, others received so-called trailing commissions from banks for the life of the loan — typically 25 years — despite not providing a client any further advice. Trailing loans are also a disincentive for a broker to help a client switch lenders.
The Easy and Transparent Trading — Empowering Consumers and Small Business public consultation paper said many consumers failed to understand how mortgage or insurance brokers got paid despite disclosure requirements.
Commissions also tended to favour the seller rather than the consumer, providing a financial incentive to recommend a certain product.
“The problem with trailing commissions is that they result in sellers of products continuing to receive income, irrespective of the level of service they are providing to consumers,” the paper said.
“This increases costs for consumers. Indeed, sellers have little incentive to apply their skills to improve the situation of people whom they have already sold products.”
Other proposed amendments include making “terms and references” clearer, opening up the rental bond market, and scrapping old laws such as an innkeeper’s liability for “damage to guest’s horses and their harnesses”. Submissions to the proposed laws close on August 27.