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Where does technology fit into the National Credit Code, and in particular, the role of providing credit advice?
It was a question I was considering recently and I thought I would share my findings and thoughts.
You may recall that an Australian Credit Licence is required if a ‘credit advice’ is being provided where the National Credit Code applies.
The ASIC definition of a credit service is one of two things. The first definition is when an entity is either acting as an intermediary between a consumer and a credit provider to provide a credit contract to the consumer. The second definition introduces the notion of providing ‘credit assistance’.
Naturally, I searched for the ASIC definition of credit assistance.
There are two circumstances where ASIC would consider credit assistance being provided to a consumer. The first is suggesting to a customer they take up a new specific product with a specific provider (or stay in their existing contract). The second is by assisting customers with completing a specific application for credit with a specific credit provider.
This definition seems a bit odd to me.
For a moment, let’s try to chronologically map the process of a consumer using a broker’s service to obtain a loan.
Step one: the broker learns what the consumer wants to do, and completes a personal and financial profile on them.
Step two: the broker searches the market for lenders whose credit policy matches the consumer’s profile and creates a shortlist of lenders.
Step three: the broker then shortlists the lender choices further by matching the consumer’s objectives and required features with those offered by the previously shortlisted lender panel.
Step four: the broker usually discusses one or more options with the consumer and answers factual questions about the products. Remember, a broker cannot provide tax advice, legal advice, or financial advice. Therefore, questions about negative gearing benefits, corporate structures or offset accounts can become awkward if the broker is doing their job as prescribed.
Step five: once the lender is identified, the broker then assists the consumer by completing and submitting a loan application (fully compliant with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006), and liaises with the lender to settlement.
With the increasingly sophisticated software products available to brokers today, virtually all of these steps can be completed electronically, if not automatically.
Where is the ‘advice’ component in this process? There is none. Interestingly, the words ‘credit advice’ are not mentioned anywhere in the National Consumer Credit Protection Act 2009.
As a result, a broker’s knowledge will need to change, as will their primary responsibilities.
A broker’s knowledge may likely soon need to revolve more around the intangibles of lender selection, by providing the consumer with their input around lender processing turnaround times (especially important in time-sensitive transactions), post-settlement service standards, or structuring of guaranteed loans or company loans, for example.
Brokers may also offer additional value in the post-submission file management stage by leveraging lender relationships where needed to result in escalating urgent files, obtaining preferential pricing, or submitting requests for outside policy exceptions. However, none of these activities require a credit licence currently.
ASIC will probably need to further consider the activities that require a credit licence, as well as refine some of their current definitions as they become quickly redundant. The new definitions and tasks, however, will not be easy to quantify under the National Credit Code and will prove a challenge requiring deep industry knowledge and input.
Troy McErvale, managing director, Freedom Group of Companies
Troy McErvale is the founder and managing director of Freedom Home Loans and My Personal Lender, a combined mortgage broker and mortgage management business in Australia, started in 2001. Since 2010, the company has offered an expanded service to include mortgages for foreign owners of US property, as well as US property consulting services to high net worth clients.
