Lenders under pressure over equal proc fees


Lenders are facing further calls to pay fairer proc fees after a major building society equalised its fees for appointed representatives and directly authorised firms.

Last week Leeds announced it was removing the inequality between DA and AR proc fees. Previously, the lender paid DAs 0.37 per cent per case and ARs 0.4 per cent.

The move has sparked calls for other lenders to follow suit, with intermediaries arguing there is no justification for ARs to be paid higher fees.

While some lenders pay ARs and DA brokers the same fee, many pay ARs around 5 basis points more.

Personal Touch sales and marketing director David Carrington says: “Historically the reason for the difference between the two is quality.

“We check the files of our members and lenders find that reassuring. But it is a generalisation to say AR business is of higher quality; there is a huge difference between the best and the worst network, just as there is a big difference between the best and worst DA firms.”

Association of Mortgage Intermediaries chief executive Robert Sinclair says: “We do not see the justification for paying different proc fees to ARs and DAs because we cannot see a difference in the quality of business between the two.”

Accord, Coventry Building Society, Halifax, Nationwide, NatWest, Santander, Clydesdale Bank and Woolwich all pay ARs higher fees.

NatWest pays DAs 0.35 per cent and ARs 0.4 per cent, while Clydesdale pays 0.38 per cant and 0.4 per cent respectively.

All of these lenders declined to provide a justification for why they pay DA brokers less than ARs when asked by Money Marketing.

In 2013 an investigation by Money Marketing’s sister title Mortgage Strategy revealed DA brokers could have missed out on tens of thousands of pounds in proc fees over five years.

The investigation found that between 2008 and 2012 a DA broker would have received gross proc fees of £485,100 if they submitted five cases a month worth £150,000 to each of Halifax, Woolwich and Santander. This compares to £554,400 for an AR submitting the same business – a difference of £69,300.

Leeds declined to comment on why it had equalised its proc fees, beyond saying the increase reflects brokers’ higher workloads following the MMR.

But experts say lenders may be feeling the pressure from DA mortgage clubs and larger firms.

Woolwich says it currently pays DA brokers less than ARs, but is in the process of reviewing its proc fee structure.

SimplyBiz Mortgages chief executive Martin Reynolds says: “This has been on the agenda of all the mortgage clubs for some time. It is an issue we raise with every lender that does not have equalised fees at review meetings.

“So Leeds’ decision may be a result of a combination of that and a review of its data.”

London & Country Mortgages associate director of communications David Hollingworth says: “As a DA firm of our size we fully expect the quality of the business we submit to be recognised as well as the volume. We don’t see the need to be playing second fiddle to networks.”

John Charcol senior technical manager Ray Boulger says: “It is complete poppycock to say ARs submit higher quality business. The quality will vary among DAs and among ARs, while all firms have to comply with the same regulatory rules.


“I can see the logic that it is more economical to do business with larger firms. But there is no justification to pay a large DA firm less than a network.”

In July 2012 Santander began paying networks commission – of between 0.35 per cent and 0.4 per cent – based on quality for products with terms of less than five years. DA firms are paid a flat rate of 0.33 per cent.

In January 2014 the lender started paying quality fees for longer-term products to ARs at a rate of 5 basis points higher than for short-term products while DAs are paid a flat rate of 0.4 per cent.

Lloyds Banking Group also moved in January 2014 to quality-based fees for ARs, and a flat rate for DA brokers.

But Carrington says while the principle of quality-based proc fees is sound, there are problems with the policy’s execution.

He says: “The quality measures used by lenders include application to completion rates, fraud metrics, and the proportion of cases which go into arrears a short time after completion.

“But some of those statistics can be flawed as working with small numbers makes percentages volatile. Lenders also do not tell firms which cases have gone into arrears, so as a firm you cannot do anything about it.

“The other issue that grates with some people is that the quality-based fee applies across the network, so higher quality members get dragged down by lower quality ARs. That is probably why other lenders haven’t followed Santander and Lloyds – because it is really difficult to apply it fairly across a network.”

Reynolds adds: “It is hard to base fees on quality because there will always be a subjective aspect to it, and every lenders’ metrics could be different.

“If a lender receives an application that passes its credit score, fits its criteria and is packaged to an acceptable quality level, they should be paid the same fee regardless of whether they are an AR or DA firm.”