Farid said he contacted a mortgage broking firm to re-fix his mortgage. He said the firm advertised that it would get the best re-fixing deal, would provide multiple bank offers, and charged no fees. Farid said he had a 20-minute meeting with one of the firm’s brokers, who later presented Farid with an offer from a bank (bank 1). Farid accepted the offer.
Farid then became unhappy because he received a better offer when he approached another bank himself. However, the broker said Farid would receive a cash-back benefit from bank 1. It transpired the cash back benefit was not as promised, Farid did not draw down the loan from bank 1, and went with another bank’s offer.
The firm then sent Farid a $3,000 invoice for the work it carried out in arranging bank 1’s offer. Farid said he should not have to pay the invoice, and he complained to FSCL.
Farid said the broker only presented an offer from bank 1, not multiple banks, and that the offer from bank 1 did not represent the best market rate. Farid considered the broker had not provided the service Farid asked for.
The firm said that Farid was re-financing his mortgage (not re-fixing), and that Farid completed documentation during the application process confirming that. Also, in the application documentation’s section about which banks Farid wanted the broker to approach, Farid only ticked the box next to bank 1. The firm said that Farid’s intention was to refinance with bank 1, and there was nothing in his instructions about matching particular interest rates. Also, Farid had accepted bank 1’s offer.
The firm also pointed to its fees document, which Farid had signed. The document said that if the firm provided an offer, and the loan was not drawn down, the firm would charge a fee equal to the brokerage that it would have received, or a maximum amount of $3,000. The fees document also said the firm charged $250 per hour, and that a residential loan takes approximately 12-15 hours to arrange.
The firm said its loss of brokerage was $11,000 but had only charged Farid $3,000, in line with its fees document.
What work did the broker undertake to arrange the bank 1 offer?
The broking firm provided FSCL with a breakdown of all the steps and the time it took the broker to arrange bank 1’s offer. The information the firm provided us was very detailed, and was backed up by evidence from its file. The broker’s steps (which took a total of 13.5 hours) included:
- An initial meeting and gathering information about Farid’s income (which was irregular), and income received from a boarder.
- Submitting the application to bank 1, and arranging the fulfilment of bank 1’s loan conditions about a house valuation, and Farid’s income.
- Negotiating on Farid’s behalf with bank 1 and meeting again with Farid to consider the loan structure and bank 1’s offer.
- Arranging for Farid to open an account with bank 1.
- Providing the loan documentation to Farid and his solicitors.
- Discussing the offer from the other bank against bank 1’s offer.
We said that the firm’s fee was clearly disclosed in its fees document. It was clear how the fee would be calculated, and that even if a client chose not to proceed with an offer, a fee remained payable.
We also said the broker provided Farid with the service he asked for. The application documentation showed that Farid wanted the firm to assist with a refinance with bank 1 only. This was the offer the firm presented.
Lastly, we looked at whether the broker had spent 13.5 hours in obtaining bank 1’s offer. We said all the steps outlined above were necessary and reasonable, and that they would take approximately 13.5 hours to complete.
We issued an initial finding that the firm was entitled to charge the $3,000 invoice. Farid did not respond, and abandoned his complaint.
Insights for consumers
It is common for brokers to charge a fee if you do not draw down a loan they have arranged. You should always make sure you read and understand all the documentation your broker provides, especially about any fees you may be charged.