In October 2021, Ruby approached her mortgage adviser wanting to refix the interest rate on her home loan to avoid increasing interest rates. Ruby was open to refinancing with a different bank for a better interest rate if the cashback amount would cover the costs to move to a new bank
The adviser informed Ruby that if the loan was not drawn down there was a potential service charge of approximately $3,000 for 15 hours of work.
During negotiations, Ruby requested that their home loan be increased. Ruby’s increased home loan was approved by an alternative bank on a Tuesday, and the offer details were sent to the adviser at 4pm on Friday. The adviser told Ruby about the offer on the following Monday night. Ruby and her husband had until 4pm the next day to agree to the bank’s terms.
Ruby contacted her original bank for a competing offer, but the bank declined to do so. Ruby and her husband agreed to the new offer from the alternative bank. However, after agreeing to the terms, Ruby once again contacted her original bank. This time, the original bank offered a better deal. Ruby asked her adviser to negotiate a better deal with the alternative bank, but they did not do so.
When Ruby said they would not accept the offer the adviser had with the alternative bank, and would accept the original bank’s new offer instead, the mortgage adviser told Ruby that their service fee would be charged due to the time they had spent negotiating with the alternative bank.
Ruby and her husband did not feel that the service fee was fair and complained to FSCL.
Ruby said she should not have to pay the fee because she arranged a better deal with her bank without the adviser’s help. Ruby and her husband also felt pressured to sign the new offer with the alternative bank because they only received the documents at the last minute.
The adviser said that Ruby was aware of their terms and conditions and the possibility of a service fee. The adviser also said that Ruby only received a better offer from her current bank due to the adviser securing an offer from the alternative bank, meaning that Ruby had benefited from their work.
Where the adviser has clearly disclosed that they will charge a fee if the client does not proceed with the lending, and the adviser can demonstrate the work to justify the fee, FSCL will generally find that the fee should be paid. This is because the adviser is not receiving any payment from the bank for the work they have done.
In this case, we were satisfied that the fee was clearly disclosed and that charging for 15 hours of work at a cost of $3,000 was reasonable, bearing in mind that enquiries were made with more than one lender, and the loan amount Ruby wanted was increased during the process. Further, it appeared that the adviser’s work prompted the original bank to improve their offer.
However, evidence also suggested that the mortgage adviser put Ruby under unreasonable time pressure in relation to the other bank’s offer. It was not clear why the adviser did not seek a better offer from the original bank, and why they did not attempt to obtain further movement on the new bank’s terms.
We found that it was fair for the mortgage adviser to charge a fee. However, we partially upheld the complaint by recommending that the mortgage adviser deduct $750 from their $3000 fee, due to the service shortcomings.
Consumers looking to work with a mortgage adviser should be aware that they may have to pay a service fee if they do not accept a suitable offer presented by the adviser.
In the process, advisers should make all reasonable efforts to present an offer to a client as early as possible to avoid putting the client under time pressure.