In what looms as a reprise of the financial planning disasters at Commonwealth Bank and Macquarie, lenders are dishing up exotic holidays, sales bonuses and other incentives to influence the product recommendations brokers make to new homebuyers.

In many cases, the incentives for brokers to sell a lender’s products can only be described as outrageous.

• FULL STORY Brokers’ huge rewards at borrowers’ expense

Perth-based lender Australian Finance Group (AFG) last month flew its top-performing brokers to Barcelona as a reward for offloading the most AFG-branded loans to their clients.

AFG promoted the campaign aggressively, making it clear in videos and brochures that only “superstar” brokers could earn the holiday, which included a private party with the hit club dance band, Groove Armada. Previous rewards holidays marketed by AFG have seen brokers flown to Hugh Hefner’s Playboy Mansion in California and the Greek islands. (Watch the AFG video promoting the 2014 rewards competition at the bottom of this story.)

Although most lenders insist that they do not shell out volume-based incentives to win affection from mortgage brokers, an investigation by The New Daily shows that two of the country’s largest banks – Westpac and NAB – are engaged in this activity.

Westpac this year boosted the value of the commissions it pays mortgage brokers to include “additional volume-based incentives”.

The pay top-ups have boosted the incomes of brokers who write Westpac loans by thousands of dollars. Credit unions, who can’t afford to dole out such bonuses, say they have been put at a competitive disadvantage.

The proliferation of volume-based payments has created a tension in the work of brokers who are prevented under the National Consumer Credit Protection Act from making “inappropriate” loan recommendations to clients.

In many cases, the inducements have spawned fresh conflicts of interest that consumer groups believe are now “so systemic” that fundamental reform of the industry is required.

The Australian Consumers’ Association, now known as CHOICE, has called on the Murray inquiry into the financial system to investigate the impact of commissions and sales-based incentives in mortgage broking.

“CHOICE would welcome if mortgage brokers would charge the lender a flat fee and rebate anything above this fee back to their customers,” said spokesman, Tom Godfrey.

Phil Naylor, chief executive of the Mortgage and Finance Association of Australia – a peak body representing mortgage brokers – says reform of the industry is not needed.

“There is no evidence that mortgage brokers are contributing to the major banks’ domination of the home loan market,” he said.

“In the absence of such evidence I can’t see how any inquiry can recommend tighter regulation of mortgage brokers.”

Read the full story on the findings of our investigation.