Banking code obligations could ‘bankrupt’ brokers

The new code, approved by the Australian Securities and Investments Commission (ASIC) in August 2018, includes new protections for vulnerable customers, small businesses, guarantors and co-borrowers, with changes to take effect on 1 July 2019.

Several lenders, including NAB and Westpac, have informed brokers of their obligations to assist in meeting requirements under the new code, which includes the provision of additional documentation to ensure clients are fully aware of the ramifications of the choices they make throughout the home loan application process.   

Both the Mortgage & Finance Association of Australia (MFAA) and the Finance Brokers Association of Australia (FBAA) have urged their members not to sign declaration forms associated with vulnerability assessments for mortgage customers, warning that brokers may face litigation if they “get it wrong”.

FBAA managing director Peter White has again voiced his displeasure with the new reforms, claiming that brokers may suffer severe consequences if they are deemed liable for a legal breach.  

Mr White stressed that brokers are not qualified to make a determination about a borrower’s vulnerability status.  

“The issue is that brokers are basically being set up to be made bankrupt,” Mr White told The Adviser.

“We spoke to a large global [insurance] underwriter, and they confirmed that brokers are not covered with their Professional Indemnity (PI) on this, because they’re actually giving advice. 

“Brokers are covered to give credit assistance to get a loan [but] what they’re now asking brokers to do is to make a psychological judgement on [a borrower’s] state of mind.

He added: “Brokers can’t do that. There’s no way a broker can make a determination on [a client’s] state of mind.”

Loan Market response

Mr White’s sentiment was echoed by executive chairman of Loan Market Sam White, who noted that while he supports the premise behind the new provisions, they burden brokers with a disproportionate level of responsibility.    

“We fully support the intent of identifying vulnerable borrowers. However, to thrust this requirement on brokers, which in many cases exceeds the requirements placed on branch staff, with virtually no notice, no guidance and no training could lead one to conclude that this is more about box ticking than about substantive improvements in customer outcomes,” the Loan Market head stated.

“From my view, the only people that could sign off competently on these requirements are trained counsellors and psychologists and it’s unfair to expect brokers to meet this standard. 

“Without significant training and support, the broker’s attention would be meaningless and give a false impression that vulnerable clients have, in fact, been identified.”

Mortgage Choice response

Mortgage Choice CEO Susan Mitchell also weighed in, noting her concern regarding the ramifications of the changes on the broker network.

“Mortgage Choice recognises and supports the banking industry’s focus on protecting vulnerable customers, particularly for those experiencing financial stress,” she said. “However, I am very concerned that some lenders are requiring our brokers to assess and identify signs of financial abuse or duress and include this information as part of the transaction process.”

Ms Mitchell called for clarification, stating that the code does not explicitly outline the burden of responsibility for the enforcement of the new obligations towards vulnerable customers.

“Our understanding is that the banking code now requires extra care be taken with a customer who has disclosed to a lender that they are in a vulnerable situation, and to work with the customer to find the best solution to meet their financial needs. The code does not actually require lenders to make their own determination of a customer’s vulnerability,” she added.  

“Our brokers, while skilled, experienced and highly regarded by our customers, are not in a position to assess nor make a determination on individual vulnerability risks.

“We’re asking lenders to continue to consult with us on this matter so we can work together on meeting the needs of vulnerable customers in the best way possible.”  

Ms Mitchell said she does not believe that lenders who are insisting on the new vulnerability assessment requirements for brokers have “fully considered the legal and moral implications of these requirements”. 

“If lenders insist on the new requirements, we must insist on a reasonable timeline for the training of brokers and a full assessment of the legal ramifications,” she said.

The Mortgage Choice CEO urged the banking industry to “act quickly” to minimise the impact to borrowers.

“I am deeply concerned that some borrowers, with certain lenders, will be caught in the crossfire and will need to wait longer for their home loan to be approved while this issue is being worked out,” she said.

Ms Mitchell continued: “As CEO of Mortgage Choice, I have a duty of care to my brokers and I’m concerned that these new requirements may be putting them in a very difficult situation and causing undue stress.

“At this stage, we’re advising our brokers who are not yet comfortable with the new requirement to identify and determine customer vulnerability, that they not take on the risk of completing the disclosure section and to discuss the matter further with our compliance specialists.”

Ms Mitchell concluded by noting that some lenders are not requiring brokers to identify a customer’s vulnerable status, which demonstrates that it is “still possible for lending applications to be completed by brokers without this requirement”.

AFG response

The Australian Finance Group’s general manager of industry and partnerships development, Mark Hewitt, told The Adviser that the aggregator is working with each of the lenders that introduced broker requirements to “come to a resolution”.

Mr Hewitt said the guidelines are “very subjective” and called for a more “quantifiable” approach.

In the meantime, Mr Hewitt is encouraging his broker network to approach new provisions with caution.

“Like any situation, if you’re not comfortable with it, you shouldn’t put yourself in it,” he said.

“There’ll be cases where brokers have known a customer for 10 years and are comfortable, but there’ll be some cases, I can imagine, where they’re not comfortable because they don’t know the customer well enough.”

Connective response

Connective agreed, with group legal counsel Daniel Oh encouraging the aggregator’s broker network not to comply with the new provisions.

“Connective agrees with the MFAA’s concerns and supports their recommendation that you should not complete this part of the application process unless you feel adequately equipped to make the assessment and determination required by the relevant lender in relation to these issues for that individual customer,” Mr Oh said.

He added: “Connective has also highlighted these concerns to our lender panel, and we will continue to work with the industry bodies and our lender partners to achieve a solution that works for all participants.”

 [Related: Risks flagged amid lending policy changes]