Kathy Cummings – a revealing interview (Part One)
By Jill Fraser for Lending Central
Kathy Cummings, Executive General Manager, Third Party Banking, Commonwealth Bank recently sat down with Lending Central and outlined her views on the relationship between brokers and the CBA.
KC: Brokers in Australia are in a very good position. They have strong businesses and strong business partners.
(In comparison) look at the broker industry in the UK, which is in tatters, the broker market in New Zealand, which is in poor condition and the fact that there are no brokers any more in the US.
LC: How do you explain complaints from brokers about being discriminated against by banks, including the CBA?
KC: Those comments are very immature.
The CBA is the biggest supporter of brokers in this market and brokers should value that.
Over the past 12 months we’ve spent a lot of time trying to educate brokers about how banks fund and the cost of money. Money is a scare resource, it has a cost and margins are under pressure.
The fact that early this year service levels were under extreme pressure was no one’s fault. Banks didn’t set out to get rid of the competition. The funding models of smaller banks were not robust therefore they had to pull out of the market.
That left the Big Four trying to manage a huge volume of business and on top of that the quality of what a lot of brokers were sending in was shocking.
Brokers seem to think they have the right to send in anything and the banks will work it out.
LC: That’s surely only a small percentage.
KC: It’s a large percentage.
LC: Are you saying that it’s laziness on the part of the brokers?
KC: It’s lack of attention to detail. They’re in a rush.
We don’t have issues with good brokers. We’ve got nearly 200 Diamond Brokers and the quality of their business is excellent.
We’ve also got a very large number in our A Segment. They are also excellent brokers.
What happened early this year occurred because a lot of brokers used second tier banks or mortgage managers and didn’t understand the processes of the majors. Suddenly they had to learn our credit policies, our processes and our products and this led to a lot of mistakes.
But that’s a broker’s trade. That’s what they do. They are supposed to be conversant in a number of products and policies. That’s their value proposition to clients.
LC: Then there’s the other percentage who are professional and capable and view you and the CBA as the enemy because of volume-based accreditations, which may potentially take away their independence.
KC: It’s about competency.
If you’re an accountant who specializes in mergers and acquisitions and you never do a tax return you’ll probably make a mess of it when you do.
We find that brokers who don’t use us regularly receive the most complaints from customers because they don’t understand the processes and they’re the ones whose submissions need the most rework.
Going into regulation will constitute a bit shift. The onus is now going to be on brokers to make sure they provide the correct information about the product and the credit policy. They will be accountable because they’ll be telling the customer, you can afford this loan.
Therefore we have to make sure that whoever is selling that product is competent and the only way I can judge competency is if I see it. I can’t judge it if I can’t see it.
So we’re saying four loans in six months!
The other option is for them to come back in for retraining.
It’s important for you to know that all the head agreement holders are in agreement with this. We’ve been sitting down with them going through lists of brokers and a lot of them are saying, get rid of them!
They’re telling us to get rid of them because they’re no good.
If a broker isn’t writing $2 million to $3 million a month they’re not in a sustainable business.
LC: Surely failing to lodge $2 million to $3 million with the CBA monthly doesn’t mean that they’re not in a sustainable business. They may be lodging elsewhere.
KC: The Commonwealth Bank has 22% of market share broadly and we’ve got 40% of the brokers’ base. If they’re not lodging deals with the Commonwealth Bank then they’re probably not doing the right thing by their customers.
Yes, we’ve tightened our credit policy, as have all the majors, in response to what we’re going to be required to do for responsible lending.
So as a result of the GFC brokers like every other profession in the world will have to change the way they do business. They’ll have to come to another level.
LC: You’re saying if they don’t lodge a certain number of loans..
KC: Yes. Otherwise I can’t judge what they’re doing.
We’ll either be getting rid of brokers or insisting they come in for retraining if the quality of the work they submit is not right.
We can’t run the risk. It’s a risk for us, it’s a risk for them and their business and it’s a risk for the consumer.
LC: My understanding was that it is three loans in a six-month period but you’re saying four.
KC: Four submitted; three settled.
LC: Is it fair to ask brokers who are just starting out for a minimum of two loans?
KC: We ask them to submit two deals. It’s the same thing as training to become a doctor. You go through training and see patients and your work is judged.
We ask brokers to submit two deals so we can see if they understand what we’re doing. We have two three-hour workshops over that period and we go out to their premises to make sure they understand all our software, how to lodge online etc. No other bank spends that much time with brokers.
LC: You seem very certain that you’re right yet we receive many complaints from brokers. Are you willing to acknowledge that some may have a point?
KC: What I know is that our share with all the major brokers is very strong. We were getting one in two loans early this year.
Yes, there’s always a fringe element. I understand that.
It comes down to the fact that certain brokers don’t want to be held accountable for the quality of their work. If quality doesn’t count in your business go and lodge somewhere else!
If you want to deal with the Commonwealth Bank you need to meet a certain standard. To keep this industry sustainable we have to do that.
LC: Do you believe that the broker market is going to survive?
KC: Absolutely. Customer sentiment drives it and we’re very supportive of good quality brokers; elite business writers.
LC: What constitutes an elite business writer?
KC: Firstly someone who is devoted to being a broker. They’re not an accountant and a financial planner who does a little bit of broking on the side. That’s not what I call a professional broker.
Let me add that I have no issue with part-time brokers if they’re mums on maternity leave who do 30 hours work as a broker because that’s (essentially) what they do. They are brokers.
A good broker lodges an application that goes through and settles. And their arrears rate runs at or less the bank average. That constitutes a quality business partner.
LC: Going back to the issue of volume..
KC: It’s not volume, it’s competency..
LC: It looks like volume..
KC: People want to call it volume. There’s no way you can judge competency without..
You can’t say a jockey is competent unless he rides a certain number of races. How can you say brokers are competent if you never see their work?
LC: Surely as long as what they’re submitting is fulfilling your requirements..
KC: We know that doesn’t work. I’ve been running this business for 12 years; I know that they complaints that come in are from the bottom rung of brokers who use us every ‘blue moon’.
LC: But isn’t what you’re saying to brokers the same as a Woman’s Day editor telling me that I can only write for them if I submit a certain number of articles per month, which is completely impractical?
KC: No. You write for magazines all the time. That’s your trade.
LC: Yes but I write for different magazines and they all require a different writing style.
KC: That’s fine. Brokers can lodge with different banks but our really big brokers put through 25% to 30% of their business with us so they understand our processes very well.
Most brokers only lodge with four or five banks and therefore know those four or five really well.
Brokers who only lodge intermittently tend not to remember our processes, our credit policies and they tell the customer the wrong thing and then we get complaints.
LC: Wouldn’t it be fairer on the broker to assess the quality of individual lodgements rather than stipulating a set number?
KC: We do. But I have to see them. One isn’t enough.
If you’re an accountant and a financial planner who submits a loan in every second or third month and it’s usually a mess and I say, go lodge somewhere else! It’s about competency. I can’t say it any clearer than that.
LC: I hear that. I’m questioning whether competency has any bearing on volume.
KC: You walk through my process shop and you’ll see..
(To be continued..)
Don’t miss Part Two of Kathy Cumming’s interview, which will run in an upcoming Lending Central newsletter.
(That last comment was said in jest and should be treated as such now is the time we all need to keep our sense of humour and have some fun).
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Jason December 4, 2009
Sp from what I understand reading so far is this:
KC: I hear what you are saying but my viewpoint is correct & until you agree with me then you have nothing of value