A party source said Labor did not want another pitched battle involving consumers ahead of the election.
Already under pressure from self-funded retirees over its policy to end cash refunds for excess franking credits, Labor could ill-afford another campaign claiming that Commissioner Hayne’s recommendation would drive up costs for borrowers, harm competition and strengthen the hand of the big banks.
One source said mortgage brokers did not have the same poor reputation as banks and there was not the popular support to pursue the Hayne recommendation.
Labor’s policy would still go further than the government and would at least shine the spotlight on the industry, he said.
The industry, which has been in Canberra this week lobbying, was assured Labor’s policy position would maintain competition.
Rivals’ point of difference
In his final report released on February 4, Commissioner Hayne recommended five changes to the mortgage broking sector.
The most contentious was that the borrower, not the lender, pay the broker the fee for arranging a loan.
He said these changes should be made over two to three years, first by banning trail commissions paid to brokers to look after the loan for its duration.
The government agreed to ban trail commissions but baulked at making the borrower pay the upfront fee. Instead, it said it would commission a review in three years. Labor gave the recommendation in-principle support and it became the biggest point of difference between the government and opposition emanating from Hayne.
Backed by the Productivity Commission and Reserve Bank of Australia governor Philip Lowe, Treasurer Josh Frydenberg said making the borrower pay threatened to diminish competition because it would reduce the use of mortgage brokers that often opt for smaller banks and other non-bank lenders.
“Why are they going to smash mortgage brokers?” Mr Frydenberg said yesterday.
“We’re on the side of mortgage brokers.”
Treasury secretary Phil Gaetjens cautioned against using the banking royal commission findings to push too hard on reforming home loan brokers at the cost of removing competition from big banks.
“Treasury did express a strong view to the role of mortgage brokers in maintaining competition,” he told Senate Estimates yesterday
“It is important that care be taken to not damage and where possible enhance competition among the banks.”
Claims of cowboy conduct
Commissioner Hayne argued consumers were in the dark over arrangements between brokers and banks and this led to dishonest conduct.
“The lender is isolated, even insulated from what the intermediary does with the borrower,” he said in his report.
He said paying a broker once a loan was approved had led to cowboy conduct, such as lending people amounts they could not afford to repay.
“It is in the broker’s financial interests to have the lender approve the loan,” the report said. “Both the NAB Introducer home loans and the Aussie Home Loans broker misconduct case studies showed, payments by banks to intermediaries have induced some to engage in other forms of dishonest conduct.”
His recommendation was supported by consumer groups including CHOICE.
Labor argues that banning trail commissions without capping upfront fees will see upfront fees rise.
Labor clarify medivac stance
Labor also struggled on Wednesday to get its lines straight on the laws it managed to pass last week to facilitate the transfer of asylum seekers to Christmas Island for medical treatment.
The government intends to send any transfers to the reopened Christmas Island detention centre that only has basic medical facilities.
Labor leader Bill Shorten raised eyebrows on Tuesday when he said he was “fine” with this.
“If the medical treatment is required and it’s delivered on Christmas Island and it makes people well, well that’s fine.”
On Wednesday, deputy Labor leader Tanya Plibersek clarified that asylum seekers should only be sent to Christmas Island if there was adequate care for their ailment.
“It is up to the government to explain how people who cannot be adequately treated on Manus Island and Nauru can have adequate medical treatment on Christmas Island,” she said.
“It is up to them to explain how they justify the extra expense of doing it this way given that this government has already brought hundreds of people from Manus Island and Nauru to Australia to the mainland for medical treatment.”