Barely a day has gone by over the past few months without some pretty sensational media surrounding misconduct in the banking industry.
Sadly, relationships between finance brokers and banks have been put to the test following comments to the Royal Commission by several major bank executives. The banks have sought to deflect some of the blame onto brokers for not having sufficiently investigated borrower needs and objectives, yet brokers (aside from a rouge few, as all industries experience) have been operating in accordance with bank lending policies. Ultimately, it is the banks who approved the loans, not the finance brokers who introduce them to the banks.
Finance brokers foster choice and competition in the banking industry
The primary objective of the Royal Commission is to investigate misconduct within the banks. Some people argue that banking misconduct has been manifested in part by the market power of the ‘big four’ banks. Brokers deal with multiple lenders and products so their clients can choose from a wide range of banks and products to suit their individual circumstances and needs. This helps foster competition within the banking sector, which is good for consumers. So, should the government seek to introduce regulations which adversely changes the way brokers operate in the market, then the government runs the risk of an unintended consequence of handing even more market power to the banks!
Over the past 25 years, finance brokers have had a healthy mutually respectful relationship with banks, with both parties recognising the valuable role they each play in helping customers borrow. Good brokers know what information the banks want to see about a borrower. So, brokers can ‘package’ client information in a meaningful ‘bank format’ to help with the approval. This saves the bank time and effort and having clarity about borrower information enables the bank to more appropriately price the interest rate to suit the lending risk.
Having all the right information makes it easier to ensure the borrower is getting the right finance for them. Responsible borrowing (and lending by the banks) has a positive effect on the Australian economy. It means ensuring borrowers fully understand the opportunities and risk associated with debt and that they (business or individual) can operate and live within their means including contingencies for unexpected costs or loss of revenue.
Without a competitive and active lending market, our economy will suffer. Multiple finance options and competition between banks is good for consumers. By way of example. When buying a television do most people shop at a Samsung or Sony Store or do they shop at a JB Hi-Fi or Harvey Norman type store? Clearly, shopping at a location that gives you choice and a variety of brands and product features (assisted by an expert) provides far better outcomes for customers.
Finance brokers play a critical role in ensuring an active and competitive lending market because we deliver advice and choice to customers who would otherwise need to search, sort and decipher lending options.