National Bank is causing administrative problems for mortgage broking groups because it has stopped providing brokers with details of which ongoing trail commissions relate to which clients.
Trail commissions are small on-going payments made to brokers by lenders. They are paid to help the brokers provide support to clients.
The bank has stopped making this information available because it has legal advice that providing that information could be in breach of the Privacy and the Secret Commissions Acts.
All the information the larger broker groups are now receiving from National Bank is how much trail commission is due each broker, but not which loans the commissions are coming from.
National Bank spokeswoman Cynthia Brophy says the bank has discovered that it needs the customer’s authorisation to provide brokers with the kind of information they’re used to receiving.
"We’re concerned that we may be giving information that we shouldn’t. Until we’ve examined our own disclosure process, we won’t be sharing that information," she says.
Brophy won’t say how long it will take to sort out the problem, but those in the industry understand the problem should be solved within three months.
NZ Mortgage Brokers Association chairman Brian Berry says it's an industry-wide problem, however, other banks have taken a more relaxed attitude towards supplying the information.
As Berry sees it, the problem stems from brokers providing their clients with inadequate disclosure of both their upfront fees and ongoing trail commissions.
Most disclosure agreements with clients refer only to the upfront fees.
It is only in the past couple of years that some lenders have been offering brokers trail commissions.
"There’s a question of whether the client is aware of that," Berry says.
He says both the NZMBA and the lenders are working on a standard industry-wide solution. In a notice to brokers about the problem issued late last week, the association noted: "With regard to the National Bank’s trail payments, we note that their error rate is very low which provides some comfort. This is a difficult situation for not only brokers, but also for the National Bank, and one that they would prefer to have avoided".
