Choice, formerly the Australian Consumers Association, is on the defensive over its decision to become a loan referrer.
At the weekend, Choice
announced that it had struck a deal with new finance broker One Big Switch "to find 1000 Australian mortgage holders willing to switch banks together for a better mortgage deal."
The deal initially drew highly positive coverage from the mass media, with Sydney's
Daily Telegraph declaring: "Borrowers get power to force rates cut."
But it has since come under fire from Choice members, and from mortgage industry experts, including prominent economist Nicholas Gruen.
Choice communications director Christopher Zinn told Banking Day yesterday that feedback on the deal had been "overwhelmingly positive", but that there had been some concern from members. Online comment by established members at the organisation's website appears to be closer to 50-50 on the merits of the arrangement.
One online member
comment referred to Choice's "growing hypocrisy… destroying years of reputation-building". Another called the deal "disgraceful… effectively an endorsement of a mortgage broking company that stands to make a significant amount of commission courtesy of trading on Choice's strong consumer protection brand." Other members enthusiastically supported the deal.
Among questions raised by Choice members is the lack of a clear public mechanism for ensuring that the deal presented by One Big Switch is the best available to members. Lenders offer loans through brokers under many different financial arrangements, and some do not offer them through brokers at all.
Asked what process existed for ensuring the deal selected by One Big Switch was the best available from all lenders, Zinn said that Choice was "only the referrer" and could not legally get involved with negotiations between One Big Switch and lenders. Since Banking Day had not suggested Choice become involved in lender negotiations, we were surprised by this response.
Zinn did say that he expected the offer to receive significant scrutiny. "So, we will hear if there is something better. And if [the offer] isn't better than one that's in the market, then we have said that it won't be offered."
Zinn could also not say whether there was evidence that "group buying" of loans would provide any savings to consumers.
Nicholas Gruen, who also owns mortgage broker
Peach Home Loans, told Banking Day that Choice's new role was "entirely inappropriate".
"They have set themselves up as an independent arbiter of what's good value," he said. But they were now using a "classic marketing technique" that claimed to provide the best-value option "and it's nothing of the kind".
Private firms such as
Rate Alert were using an almost identical strategy, he noted.
He also questioned One Big Switch co-founder Lachlan Harris's aspiration, quoted in
News Ltd newspapers, to get "millionaires' rates for ordinary mums and dads". Despite perceptions, Gruen said, millionaires often did not get rates significantly cheaper than those secured by ordinary wage-earners.
Gruen also questioned whether any banking deal could be a "group buy" given the need to tailor loans to individual borrowers' characteristics.
Yesterday, Choice CEO Nick Stace responded to the growing reaction with a
blog post. He called the deal inspiring, exciting and "a next-generation consumer campaign" that would "give consumers the best chance of getting the best mortgage deal". He claimed that "when you rattle a few cages, funnily enough accusations and misinformation begin to fly around."
Stace also said that Choice hadn't been clear enough about its plans, and disclosed that the organisation would receive a fixed fee - presumably a per-loan fee - regardless of which lender One Big Switch selected.
Choice has been a consistent critic of the major banks; for instance, it was one of the most vocal lobby groups arguing for the controversial ban on mortgage exit fees.
But Choice has also sought new commercial partnerships in finance and other fields in recent years, as it battles against online competition in its traditional consumer advice space. These partnerships include lead-referral deals with
GetPrice and
Mozo.
One Big Switch has been co-founded by Lachlan Harris, a former media adviser to ex-prime minister Kevin Rudd. During Harris's time there, Rudd's office was perceived to have formed close ties with Choice and with the broader consumer movement.