A man in Christchurch, presumably a broker, called G Hill, complained to the Advertising Standards Complaints Board that the BNZ ad campaign was “miss-leading (sp) and dishonest”.
His argument was that BNZ withdrew from the broker market as it wasn’t doing very well there and that mortgages sourced through brokers are more cost-efficient than bank-originated home loans.
BNZ hit back at the allegations saying firstly that margins had been falling and broker commission costs had been rising.
“We felt we could offer our customers better interest rates by cutting out the middle man,” BNZ said in its submission.
It says cutting out the brokers meant a better deal for lenders. To prove its point the bank supplied some illustration of costs. The costs in the following table using “illustrative” margins and loan sizes have been used to prove its case.
Without paying brokers Paying brokerage Home Loan $100,000 Home Loan $100,000 Two year fixed rate 7.40% Two year fixed rate 7.40% Margin 0.60% Margin 0.60% Gross rev year 1 $600 Less brokerage 0.65% Gross rev year 2 $600 Year 1 margin -0.05% Gross rev Yr 1 -$50 Year 2 margin 0.60% Less trail com 0.25% Margin less comm. 0.35% Gross rev Yr 2 $350 Revenue Br 1 & 2 $1,200 Rev Yr 1 &2 $300
BNZ says it would make a loss on a two-year broker originated loan in the first year and overall for a two-year loan the revenue from a broker sourced loan was much lower than one through the bank.
It then argued that its rates when it was in the broker market were the same as the other major banks, but when it cut the ties with intermediaries its rates fell.
BNZ summed up its position thus: “Our overall view is that we have a cost advantage over our competitors who use brokers and we have been passing that cost advantage on to our customers.”
The ASC Board described the ad as “a positioning statement predicated on the advertiser’s status prior to, and post, its withdrawal from the broker market.”
A majority accepted BNZ’s arguments “that interest rates were lower due to the absence of the cost of brokers.”
However a minority said that bank’s interest rate argument “did not speak for itself.”
“The minority was not satisfied that the absence of a broker’s costs would reduce the overall costs to the bank as, in its view, other costs would be incurred…which are likely to exceed the so called ‘savings’ by not employing a broker.
However the bank won the argument on the majority view and the complaint was not upheld.
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