After facing public backlash due to the controversies revealed by the royal commission, the National Australian Bank announced that it would discontinue its home-loan referral scheme to rebuild its reputation and regain the trust of borrowers.
In a statement, NAB's acting chief executive, Phil Chronican, said NAB will no longer pay commissions to members of the public who refer new home-loan clients to the bank.
“Like other businesses, we will still welcome referrals and will continue to build strong relationships with business and community partners,” he said.
NAB’s referral scheme, also known as the Introducer Program, involved payment of a spotter's fee to people who successfully referred fresh home-loan borrowers to the bank. According to a report in The Sydney Morning Herald, NAB paid roughly $100m in referral payments between 2013 and 2016, providing introducers with commissions of 0.4% of the loans.
During its investigation, the royal commission found that many of the introducers were real estate agents, lawyers, and sports club members. One of the many red flags the investigation uncovered was the commission paid to a gym owner whose profession was not qualified for the program.
The commission also discovered the alleged involvement of some NAB introducers in a bribery ring in Western Sydney.
In response to these findings, NAB initially pledged to bolster its introducer program, creating regulations which would make qualifications for an introducer more stringent. This initial response was in line with Commissioner Kenneth Hayne’s suggestion, which was to improve the regulation of introducer schemes.
“Introducers must only act within the confines of their prescribed role. Entities must have systems in place to ensure that introducers do not exceed this role. And entities should not regard the role of the introducer as modifying their own responsible lending obligations,” he said.
However, Chronican said the bank's decision to ultimately scrap the scheme is fitting to meet community expectations.
"We want customers to have the confidence to come to NAB because of the products and services we provide – not because a third party received a payment to recommend us," he said.
Patrick Veyret, policy and campaigns adviser of consumer advocacy group Choice, told the Herald that commission-based schemes would only be detrimental to the industry and to the community it serves.
"As we’ve seen across the industry, percentage-based commissions create conflicts of interest, where advisers, such as introducers, are incentivised to recommend larger and less affordable home loans to maximise their own pay cheques," he said.
Collections: Mortgage News