SYDNEY (Reuters) - Australia's government said on Tuesday said it would no longer seek to abolish hidden commission payments to home loan brokers by banks, as recommended by a misconduct inquiry that found they often encourage poor outcomes for bank customers.
The measure, one of 76 recommendations put forward by the Royal Commission in its final report on Feb. 1, was widely seen as the inquiry's most controversial proposed change. The conservative government had said it would act on all 76.
However, mortgage brokers have mounted a vocal campaign against any ban on them receiving rolling payments from banks - referred to as "trailing commissions" - for selling their products.
On Tuesday, Treasurer Josh Frydenberg said the government would no longer introduce the ban.
"The abolition of trail from July 2020 won't proceed as first announced," Frydenberg told reporters.
"Following consultation with the mortgage broking industry and smaller lenders, the coalition government has decided to not prohibit trail commissions on new loans, but rather review their operation in three years time," he added.
The recommendation to scrap the commissions came after the year-long inquiry raised suggestions that the payments risked influencing mortgage brokers to sell people inappropriate products or borrow more than they could afford to repay.
The move had sent shares in mortgage selling companies into free-fall and triggered a push by the brokers and the banks that depend on the payments to distribute their home loan products to lobby against the reforms.
"We're concerned about the impact on competition in the mortgage lending market," Frydenberg said.
"There are 16,000 mortgage brokers across Australia, many of which are small businesses, employing more than 27,000 people. They write over half of the residential backed mortgages. They're a very critical part of the sector."
Shares of mortgage brokers Mortgage Choice Ltd and Australian Finance Group Ltd were trading less than 1 percent higher in late afternoon trade, while the broader market was flat.
(Reporting by Paulina Duran; Editing by Byron Kaye and Kim Coghill)
