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Brokers will still be required to comply with forthcoming best interests duty obligations under the federal government’s proposed responsible lending reforms.
Last week, the federal government unveiled a plan to overhaul credit practices, which included the removal of responsible lending obligations from the National Consumer Credit Protection Act 2009 (NCCP).
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In a supporting document, the government confirmed that to “ensure there is no misalignment between the obligations of mortgage brokers and lenders”, brokers would no longer be subject to responsible lending laws if the proposals receive legislative approval.
However, the government stressed that such proposals would have no bearing on best interests duty (BID) obligations, which are set to take effect next year.
“Consumers will continue to be protected when accessing services by mortgage brokers through the recently introduced best interests duty for mortgage brokers commencing 1 January 2021,” the government noted.
According to the CEO of the Mortgage & Finance Association of Australia (MFAA), Mike Felton, holding brokers to a higher standard would work in the industry’s favour.
“This will further differentiate the mortgage broker channel,” he said.
“Under a best interests duty, all consumers obtaining credit assistance through the mortgage broker channel, and particularly those who are most vulnerable, will benefit from the protection of an unrivalled higher duty, providing yet another compelling reason to use a mortgage broker.”
Mr Felton added that the proposed reforms, which involve a “long overdue” shift from a “lender beware” model to a “borrower responsibility” model, would also protect the integrity of the channel by requiring clients to be “more accountable for providing accurate information”.
However, the MFAA CEO said that if the proposals are approved, lenders should continue to ensure there is no disparity between the assistance they provide to bank staff and mortgage brokers.
“While the removal of the outdated and overly complex responsible lending obligations is important, it is equally important that in the new environment banks provide broker customers with the same application processing and credit assessment service levels they provide to their bank branch customers in order to ensure consumer outcomes and competition are not impacted,” he said.
Proposals to reduce turnaround times
Reflecting more broadly on the government’s proposals, Mr Felton said they should assist in addressing what has at times been an “almost forensic audit of consumer expenditure”, which would support faster credit decisioning.
“The changes should result in faster turnaround times for qualified borrowers, which have been an increasing issue for lenders, and a point of frustration for mortgage brokers, particularly this year,” he said.
Managing director of the Finance Brokers Association of Australia (FBAA) Peter White AM agreed, welcoming the government’s “common sense” proposals.
Mr White said current arrangements have resulted in “overzealous investigations” of a borrower’s financial position.
“It’s become an exercise by lenders to pass judgment on a borrower’s discretionary spending, which isn’t the role of a lender.
“All a lender should care about is the capacity of the borrower to service the loan, and they already have many criteria on which to base that. This won’t change.”
Mr White stressed that the proposals would not undermine consumer protections, noting that under the proposals, lenders would still be subject to regulation from the Australian Prudential Regulation Authority (APRA), which will continue to issue guidance regarding sound credit assessment and approval criteria.
Key elements of APRA’s guidance would also be applied to non-banks, currently bound by NCCP obligations enforced by ASIC.
Mr White also urged the federal opposition and minor parties to support the proposals, which he said would ensure borrowers who can afford a loan are not locked out of the market and have timely access to credit.
The government will now commence public consultation with stakeholders before finalising any legislation required to implement the reforms.
If passed, the proposals would take effect from 1 March 2021
[Related: Responsible lending laws to be scrapped]
