Mortgage brokers have welcomed new proposals from the Australian Securities and Investment Commission that clamp down on lending criteria, but say businesses in the industry must be prepared to deal with a bigger administrative burden.
The proposals, released yesterday, outline the “responsible lending obligations” that credit licensees must observe if the proposals were to become law.
The main changes stipulate that licensees will have to conduct “reasonable inquiries” about a consumer and assess whether a credit product is not suitable for that consumer before offering the product.
As part of the National Consumer Credit Protection 2009 bill, licensees must “make reasonable inquiries of the consumer about their financial situation and their requirements and objectives in relation to the credit contract”.
“Based upon these inquiries, [they must] assess whether the credit product is unsuitable for the consumer and only proceed if the credit product is not unsuitable; and give the consumer a copy of the assessment if requested.”
ASIC commissioner Peter Boxall said in a statement the new proposals are a key feature of the bill.
“The responsible lending obligations are a key consumer protection feature of the new credit regime. Our proposals aim to give credit licensees guidance about our expectations, while still allowing businesses flexibility in deciding how they will meet the obligations.”
ASIC said it will administer the responsible lending obligations to “reduce the risk of consumers being offered loans that they cannot afford to repay”.
Wayne Ormond, chief executive of Refund Home Loans, says the new regulations are a good thing and they will work to stamp out mortgage brokers that aren’t compliant with current regulations.
“All good mortgage brokers will be able to utilise this as an opportunity. Most of them won’t have to make too many changes, but it’s really going to be the banks that will have to make the most because they need new licensing certificates and so on.”
“Regulation, if measured and done properly, is always a good thing for any industry, particularly with something as sensitive as mortgage finance. If a bank makes a mistake with a customer, it can cost them both dearly.”
Sean White, chief executive of Paramount Mortgage Services, says the new regulations are expected to work but “there will probably be a lot more administration involved… but you just have to deal with it.”
Mortgage Choice spokesperson Kristy Shephard says the new regulations will put pressure on smaller, more independent mortgage brokers that are not complying with industry regulations.
“This regulation is something we’ve been calling for, and we’ve actually well prepared ourselves long ago for this. It will be a pressure on some mortgage brokers in the industry, and there will be plenty who aren’t prepared and hopefully they are getting their gear on and educating themselves about what they need to go through. For some, it is going to be a challenge.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
