Watchdog warning on loan brokers
MOVES by banks and building societies to slash the commissions paid to mortgage brokers will create a conflict of interest that could see brokers acting against the interests of consumers, the Consumers Association said yesterday.
Chairman of the CAI James Doorley called on the Financial Regulator to carry out more inspections and "mystery shopper" exercises to ensure that brokers do not direct business where they will get the best commissions.
The call comes after a string of lenders cut commissions paid to brokers, with some lenders refusing to deal with brokers in the future.
Mr Doorley said: "With financial institutions either abolishing or slashing fees to brokers it's hard to be confident that they will direct consumers to products or institutions where they receive less or no income."
He stressed that the statutory Consumer Protection Code demands that brokers act in the best interests of consumers and only recommend products that are most suitable to their needs
But he added: "There is now a potential conflict of interest and a concern that ways and means will be found by some brokers around this to maintain their income. This is especially so in a much slower market."
Mr Doorley's comments came after the largest body representing brokers, the Professional Insurance Brokers Association (PIBA), said it was inevitable that consumers would now be asked to pay a fee to a broker to recommend a mortgage to consumers.
Chairman of PIBA, Jack FitzPatrick, said he was confident brokers would end up arranging up to 60pc of mortgages in two years' time, up from around 50pc at present.
He said consumers would be prepared to pay a fee to get a broker to guide them through the mortgage maze where up to 22 lenders offer up to 400 different home-loan products.
Michael Dowling of the Independent Mortgage Advisers' Federation said there was no risk; brokers would only recommend products where they got the highest fees.
Records had to be kept which could be inspected by the regulator while brokers have to provide a letter to a consumer setting out why they have recommended a particular mortgage product.
Brokers that break the rules could have their authorisation to operate withdrawn by the regulator, Mr Dowling said.
Mr Fitzpatrick said his 900 members were suffering the knock-on effects of volatility in the global markets that was affecting banks.