Royal Commission into Banking
Well the commission kicked off on the 12th March and through last week the focus was on residential mortgages in Australia and the relationship between introducers, brokers, banks (lending institutions) and the impact of behaviour in relation to negative outcomes for consumers. I watched the news bulletins reporting on the commission’s daily events with I have to say, some bemusement. They were heavily weighted towards what I would describe as “negative & sensational” reporting. I am not in any way condoning fraudulent activity which can be instigated by individuals/groups within any industry.
However I need to point out some facts. These are carefully considered from someone who has spent (40) years of working life in the finance services sector and who carries both theory and practical knowledge developed over that long period. I’ve stepped out some important points in an ascending order below, which shows some solid improvement in the finance sector over the last (8) years. It will never stop individuals from acting in a fraudulent manner, but it does and has, put systems in place to deal with such activity:-
Following the 2007 GFC the Australian government, in 2010 introduced a new far reaching set of consumer protection laws (NCCP) – National Consumer Credit Protection.
NCCP was designed to make consumer credit more uniform rather than having different ‘credit laws’ governing from state to state. It also came with a new ‘Australian Credit Licencing’ regime administered by (ASIC) Australian Securities Investment Commission. Heavy enforcement penalties through fines and jail sentences could be imposed to individuals and corporates for breaching the law. A ‘Credit Licence’ must be renewed every 12 months which requires a solid set of mandatory criteria being met. NCCP also included ‘responsible lending guidelines’ which placed the emphasis fairly and squarely on the shoulders of lenders and brokers to qualify and quantify data that was provided to them by clients.
The NCCP laws came with a clear system or process of dealing with consumers. It involves completing a proper ‘fact find’ and assessing client’s full needs and objectives so that any product recommendation is not considered to be ‘unsuitable’ to the clients. It has to fit their needs. The process has an order to it so that certain documents are required to be issued to clients in a certain stepped way. Software systems used by lenders and brokers require you to follow that process.
NCCP requires all individuals offering credit advice to have in place proper licencing, the required minimum industry qualification, professional indemnity insurance, and membership to the suitable external complaint resolution scheme.
Documents issued to consumers through the beginning and to the end of a credit application, clearly show commission structures and amounts paid to the broker by the lender and by the consumer themselves (if applicable). They reflect interest rates, loan terms, assets & liabilities and income & commitments etc etc, which were utilised to arrive at the recommendation at the time. Clients receive copies of all these documents, and that’s well before any formal loan approval is granted!
I reiterate that the NCCP laws have been in place for (8) years now. Illegal/fraudulent activities have been uncovered by the laws and criminal activity has been punished, which means the laws are actually working!
Can we stop fraudulent activity altogether? The answer is obviously a NO because we cannot legislate ethical & moral behaviour. However we can take note of improvements in historical terms. I for one can see a remarkable improvement in professionalism and transparency within my sector over the (15) years that I have been active as a residential mortgage broker/credit adviser.
I will make one final comment and that is that the consumer/client needs to also act in a responsible manner in dealing with credit. At COMPASS Lending & Finance we are very aware of looking to assist all our clients in managing their financial affairs and that includes providing warnings where appropriate, in levels of debt and the management of that.
Please contact Michael on 02 6583 2211 if you have any questions.