After being implemented at the start of the year, best interests duty (BID) has been touted as a point of difference that could continue the recent growth of broker market share. But, according to finance broker Ezekiel Sim of Ezekiel Finance, if responsible lending laws are removed in March, the regulation could actually widen the gap between broker and bank. MPA spoke with Sim on the potential for channel conflict if Australia’s lending laws are relaxed.
The challenge of BID
Added compliance is one of the biggest challenges finance and mortgage brokers are facing right now. On top of the raft of policy changes introduced by lenders at the onset of COVID-19, best interests duty has meant the amount of work required to get a loan over the line has skyrocketed.
“The issue is that BID is not prescriptive,” said Sim. “Aggregators are also struggling to automate the process so there are a lot of manual notes that we are putting in for each application. That requires more time from the broker’s part.”
Read more: Connective offers tips on writing client notes for BID
With mortgage activity surging in November last year, it is clear that government stimulus and low rates are having an impact on the market, meaning brokers are busier with clients while navigating new compliance requirements.
“The influx of the construction applications coming through because of the home building grants - we are all driving to meet the timeframe and at the same time ensure that we meet the compliance for BID,” said Sim.
The potential for channel conflict
He believes that BID itself is a good thing that drives a point of difference between brokers and banks, however, he also believes that if responsible lending laws are peeled back in order to free up the flow of credit, a channel conflict could emerge that would put brokers at a major disadvantage.
“Brokers face a growing issue where banks will end up being quicker at turnaround and easier to deal with as compared to brokers,” he said. “With this change, banks will start to look at their lending policies and their processes to make lending more accessible and simpler, while BID requires brokers to meet a higher compliance standard. That mean borrowers coming through brokers need to provide more information to us compared to the banks.”
Not only would this put brokers at a disadvantage, if customers perceive it as being easier to go directly to a bank and provide less documentation, they will miss out on the unique benefit that only the third-party channel can provide - that of choice.
“I hope that in the broking and banking industry they will address the widening of the gap to ensure that we are still on a level playing field and that customers will still benefit from all those changes rather than them going straight into the bank,” said Sim.
With the Treasurer’s guidelines around the change to Australia’s credit rules yet to be clarified, only time will tell. But at the moment, one thing is certain – it takes more time for a broker to line up finance than ever before.
Read more: What do the new lending laws mean for mortgage brokers?
“If responsible lending laws are removed, they (lenders) will have less documentation required for a loan application as compared with what we need for BID,” said Sim. “I agree that with BID, if nothing changes on the responsible lending side or the requirements for the banks don’t change, we’ll acquire more market share. But if they are making it more lenient for bankers to put loans through then I think it will affect us.”