Mortgage brokers new legislation

Now that the new best interest policy have become a law, how does it effect the consumers? Are brokers now obliged to continuously keep looking for a better product once the loan has settled?

Are the brokers not allowed to put clawback clause in the contract after 1st July?

Can the brokers still charge a clawback if the loan was done prior to 1st July?

 

I am not sure why this would prevent a clawback, but would be good if it did as it would remove any rebate brokers.

 

Best interest duty (BID) has been deferred until January 2021 due to COVID

Which is a real shame because it will create a further competitive advantage for brokers vs. bankers who can't provide BID. It'll also impact those brokers who exclusively put all their volume through the one lender.

Best interests duty delayed by six months

 

I'm fairly certain that the new legislation has been delayed until January due to the health crisis, so it become effective 1st of January 2021. From then brokers will not be allowed to charge clawback fees.

In order to charge a clawback, borrowers need to sign an agreement prior to the loan being set up. I don't know for certain, but I suspect borrowers will be bound by the date on which they signed the agreement, not the date the clawback is charged.

The legislation does not obligate brokers to continuously look for a better deal on your behalf. That's completely unmanageable. The legislation requires brokers to act in the best interests of the borrower. The challenge is defining what 'best interests' means, but I think we can all agree that part of it includes putting the clients interests ahead of all others.

In reality most brokers do try to act in their clients best interests. For the most part brokers will keep doing what they're doing, but will have more formalised records of their recommendations. The real outcome of this legislation will be more paperwork for brokers.

Worth pointing out that the legislation puts no obligation on any other loan distribution channels such as branches, mobile bankers or online lenders.

 

Don't the banks have to comply with BID? That seems unfair to the consumer.

 

Nope. They have no obligation under the best interests duty. The irony is most of the brokers perceived conflicts of interest have their origins in bank behaviour, or the banks could easily do things to mitigate it (but don't).

 

Consumers have a choice, go direct to the lender and know that BID doesn't apply to them OR use a broker.