Lendi facing revolt by Aussie Home Loans franchisees over access to customers

Commonwealth Bank-backed mortgage broking firm Lendi faces a rebellion by a large number of Aussie Home Loans franchisees over how customer referrals and leads are distributed.

An email by the Aussie Franchisee Association to its members highlighted the tension between Lendi and the large group of franchisees.

Commonwealth Bank-backed mortgage broking firm Lendi is at loggerheads with a large group of Aussie Home Loans franchisees over the treatment of customer leads and a potential breach of the franchise agreement by the parent entity.

The allegations at the heart of the stand-off concern Lendi – which merged with the larger Aussie Home Loans in 2021 – not drawing on the postcodes of potential customers in all inbound loan queries, so they could be referred to the relevant franchisee or broker, The Australian understands.

Aussie franchises were bought on the premise owners would have access to a particular territory, but the removal or non-collection of postcodes from some customer referral channels means inbound queries are often being sent at the discretion of the ­company.

The issue is creating angst among a group that represents between half to two-thirds of Aussie’s 230 stores, alongside another change that Lendi introduced to the broker commission structure. The latter sees Lendi receiving a larger share of upfront commissions paid by banks for mortgages that are referred through the broker’s head office. The franchisees that opt in to that structure receive additional front and back office support and services, with Lendi getting a greater share of commission. Lendi on Tuesday denied the company had removed customer postcodes from referral channels, but sources said there were some Lendi/Aussie referral channels where the postcodes were not collected, including the Aussie mobile phone app.

Lendi chief executive David Hyman

It is also unclear whether the postcode data is being used by the company in making referrals to franchisees or brokers, as several sources told The Australian they had received leads from Lendi for customers outside of their state.

“They distribute the (customer) leads as they see fit,” one Aussie franchisee said on the basis of anonymity.

Another said: “The atmosphere is bitter … these (Lendi) guys have destroyed the culture.

“It’s (Lendi is) an online firm that is trying to look after a retail set up which is based on relationships.”

Lendi chief executive David Hyman said merger transformation programs were difficult.

“We don’t expect everyone to embrace change,” he said. “That’s fine and understandable, but our path is to make it as easy as possible for brokers and customers to get the best mortgage deal.”

An email by the Aussie Franchisee Association to its members, sighted by The Australian, highlighted the tension between the two sides.

“We believe that the failure by Lendi to collect postcode information from customers represents a breach of the franchise agreement by the Lendi Group,” it said. “We have brought to Mr Hyman’s attention our belief that the omission of the postcode collection breaches the franchise agreements we have all signed in good faith … we appreciate your understanding and co-operation as we navigate these testing ­matters.”

The email said Mr Hyman had accused the group of creating confusion and discussing “unspecified disinformation” and that the ­company would issue a breach to members of the association if it resumed talks.

The dispute with franchisees comes after Lendi confronted a more difficult operating climate as it sought to bed down the merger and higher interest rates curtailed lending volumes.

Lendi’s after-tax losses swelled to $92.3m for the 12 months to June 30, 2023, from almost $2.5m in the prior year, the latest accounts lodged with the corporate regulator show. Gross mortgage settlements slipped 2.2 per cent to $32.9bn, but Lendi’s total loan portfolio rose more than 10 per cent to $98.1bn.

The disappointing results were attributed to a challenging operating environment and markedly higher rates, while the accounts also said the fiscal year represented a peak for merger integration costs.

Underlying earnings before interest, tax, depreciation and amortisation – which is adjusted for lumpy items and one-off restructuring costs – fell to $20.5m, from $55.3m in the prior financial year.

Lendi also appears to be shedding market share.

As of December 31, it accounted for 6.5 per cent of the market, while a recent presentation to brokers and franchisees showed market share at 5.7 per cent.

The company’s problems were added to by a joint venture between it and Domain Holdings, known as Domain Home Loans, unravelling over the past year.

Domain chief executive Jason Pellegrino in February said the firm had finalised an exit from the venture and would pursue “alternative options”.

Large banks that own stakes in Lendi will be taking a keen ­interest in the company’s ­performance.

CBA, ANZ’s external venture capital unit 1835i and Macquarie Bank own stakes in Lendi, with CBA being the largest of the bank shareholders with about 40 per cent. ANZ and Macquarie account for separate holdings of less than 10 per cent apiece.

More broadly, the franchise model has come under fire from a number of other companies in recent years including Retail Food Group, the operator of outlets including Michel’s Patisserie, Donut King and Gloria Jean’s Coffee.

Retail Food Group in late 2022 entered a court-enforceable undertaking with the competition regulator to settle legal action that alleged unconscionable conduct and false and misleading representations made in its dealings with franchisees.

Lendi said more than two-thirds of its network had chosen a company-supported commission model. In the full-service model outlined by sources Lendi would take about 50 per cent of the upfront commission paid by a bank on a mortgage to a broker or franchisee, while in other models the split is closer to 75 per cent going to the broker or ­franchisee.

Lendi last year restructured its operating model, which led to some headcount reductions across the business.