The federal government is facing pressure from consumer groups to ban mortgage broker commissions, as they’re believed to contribute to bad behaviour and household debt.  

Kelly O’Dwyer, the federal minster for revenue and financial services, has ordered the Australian Securities and Investments Commission (ASIC) to investigate the risks surrounding mortgage broker remuneration as part of the government’s response to 2015’s Financial System Inquiry.

The report is expected to be handed to O’Dwyer within the next few weeks.

Choice, a leading consumer advocacy group, hopes the report will shed light on how mortgage broker commissions and other types of “soft payments” work.

“According to the Credit Act in Australia, a broker has an obligation, like anyone involved in the lending process, to arrange a [suitable] loan,” Erin Turner, Choice’s head of campaigns, told ABC News. “That just means something that you can afford — they're not necessarily going to be giving you the best option in the market.”

Most brokers earn an upfront commission of approximately 0.7% and a trailing commission during the life of the loan. Some economists have warned that these payments incentivise brokers to sign up borrowers for mortgages they cannot afford.

On the other hand, Brett McKeon, managing director of Australian Finance Group (AFG), rejects these claims, calling them a “furphy.”

“We get to see a lot of data, I mean we’ve written nearly 1.5 million loans over the last 22 years and we’re not seeing that evidence. [To] the contrary, we’re seeing a lot of happy consumers,” he said.

If the federal government pushes through and bans commissions, it’s going to face a backlash from mortgage brokers. 

“If they stopped their commissions I think I’d probably just about call it quits. It would be very difficult to recruit people in the future if you haven’t got that commission,” said mortgage broker Barry Oxley. “If we had our commissions cut, then the client would be billed a fee. So therefore it's going to cost the client a lot more where at the moment it costs the client nothing. Let’s hope the government is not irresponsible and does something silly like that.”