Labor wants new bank levy to boost compensation scheme

The retreat, as revealed byThe Australian Financial Review, is a reversal of Labor’sinitial positionwhich was to support the recommendation that the borrower, not the lender, pay. Labor will back the current arrangement in which the lender pays.

Treasurer Josh Frydenberg said Labor had been humiliated.

“It doesn’t matter what Labor say they will do before the election, mortgage brokers know that they can’t trust Labor,”he said.

“Should Labor win the next election, they will implement the royal commission’s recommendations in full, just like they said they would before they had even read it.”

After a messy fortnight in Parliament, a lot of which saw Labor on the back foot over asylum seekers, Opposition Leader Bill Shorten will on Friday try to seize the initiative on banks with his compensation scheme boost.

This week, Mr Frydenberglaunched a $30 million scheme of last resortwhich will compensate victims with unresolved complaints going back as far as January 1, 2008, and be administered by AFCA.

There will be compensation of up to $500,000 for consumers, $1 million for small businesses and $2 million for primary producers.

Labor’s scheme would also compensate victims as far back as January 1, 2008, but in addition it would be prospective, applying to future victims.

Non-financial loss

The compensation cap for small business will be doubled from $1 million to $2 million and quadrupled for individuals to $2 million.

AFCA’s current cap of $5000 for non-financial loss will be removed and compensation for that will be combined with the financial loss cap.

If, for example, a person was given $1 million compensation for financial loss, they could potentially receive another $1 million compensation for non-financial loss, up to the $2 million cap.

Labor’s scheme will also enable people who have previously made complaints to make their case again and apply for compensation up to the new caps.

The scheme will cover misconduct by banks, insurers, financial advisers, pay-day lenders, consumer lease providers, mortgage brokers and other lenders.

It will involve a new levy paid by AFCA members to fund an independent board which will oversee the scheme.

Labor will double from one year to two years the time in which people have to lodge a claim. After this two years, the levy will also be used to fund an insolvency poll to compensate people left high and dry by institutions which have gone bust.

Labor said the size of the levy was yet to be determined.

“Labor will make the big banks pay what they owe. We will fight for victims to get what they are owed,” Mr Shorten said.

“Importantly, this won’t just include loss of possessions and assets – the banks will also have to pay for non-financial loss. Because we know that some of the worst losses has come not from a loss of possessions, but from the impact on people’s lives and identity.”

‘Listening to concerns’

He called on the government to match the scheme.

Treasurer Josh Frydenberg said Labor could not be taken seriously over its response to the Hayne royal commission until it matches the government and responds in detail to all 76 recommendations. Labor has pledged in-principle support for all recommendations and issued detailed responses to six.

Today’s announcement on mortgage brokers will be the seventh.

Shadow finance minister Jim Chalmers all but confirmed on Friday a backdown was in the wings.

“We’ve said from the beginning that we accept in principle all of the recommendations of the royal commission, and that includes the conclusion that mortgage broker fees can be fixed up,” he said.

“There are issues there that need to be addressed. We’ve been engaging with the mortgage brokers … and we have been listening to their concerns.

“We’ve been giving them the same message publicly and privately that we think they’re an important part of the system, and that they’re especially good for competition. So if there are better ways to fix up the fee structure for mortgage brokers, then obviously we would look at those.”

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