MFAA welcomes ‘appropriate’ BID changes

As first announced in September, the reforms are aimed at improving the flow of credit by reducing the time that it takes consumers and businesses to access credit so that consumers can “continue to spend and business can invest and create jobs”.

The changes also included an extension of the incoming best interests duty (BID) to all credit assistance providers, which both the FBAA and Connective have tentatively welcomed for helping create a more even playing field for brokers.

The Mortgage & Finance Association of Australia (MFAA) has also welcomed the “appropriate” extension of the BID to cover all credit assistance provided to consumers by brokers, but noted that there was only a “short time frame” for finance brokers (who were not previously covered by BID) to implement the changes.

MFAA CEO Mike Felton said: “A notable feature of the release is the extension of the best interests duty to finance brokers effective 1 March 2021. This has been partly necessitated by the proposed removal of a number of key responsible lending clauses relating to credit assistance providers (including finance brokers) that could have left a gap in the legislation. 

“It’s also important to ensure that there is a level playing field in all credit assistance provided by brokers to consumers regardless of the type of consumer credit the broker is assisting with,” he said.

“I believe that a consumer who is using a broker for any credit assistance would reasonably expect that they are covered by the new BID, so – in many respects – these changes will further align the law with customer expectations and assist to remove any potential confusion a consumer may have as to whether or not a BID applies,” he added.

While Mr Felton said that the proposed time frame given to finance brokers to implement the changes “does require further discussion and consideration”, he said that, overall, the changes would “leave the finance broking industry in a strong position, as they will result in the channel being further differentiated for customers – beyond the experience, expertise, choice and convenience already offered”.

“Once implemented, consumers will have the comfort of knowing that all brokers will operate under a best interests duty in relation to the credit assistance they provide, which is an unrivalled higher duty than responsible lending, providing yet another compelling reason to use a broker,” the MFAA CEO concluded.

The MFAA also welcomed the changes to credit legislation that aim to help shift the lending laws from a “lender beware” model to a “borrower responsibility” model by allowing lenders to rely on the information provided by borrowers. The MFAA said this could “help address what has – in the past– been an almost forensic audit of consumer expenditure when assessing credit”.

However, while the association welcomed the move to “remove complexity, improve efficiency and further differentiate the broker value proposition”, the CEO added: “[W]e are urging caution in the way the changes are implemented to ensure that they do not produce further channel conflict in the manner they are implemented by lenders, thereby negatively impacting consumer outcomes and competition. 

“It is also important that mortgage broker obligations are clearly understood by all stakeholders to ensure that matters that are elevated to external dispute resolution are objectively and appropriately assessed,” Mr Felton said.

Conflicted remuneration queries

AFG’s general manager, industry and partnership development, Mark Hewitt, also commented on the proposed changes, telling The Adviser that the extension of the BID to cover other credit assistance providers would “help ensure consistency of expectation and experience for borrowers when they are seeking regulated credit”.

However, the AFG executive added: “We were, however, surprised that the conflicted remuneration provisions that apply to mortgage brokers were not also extended to cover other types of introducers. 

“Recognizing that the best interests duty is a steeper test than responsible lending, we think it is very important that an even playing field is maintained when it comes to the level of verification of customer information.  

“We would hate to see a situation created where the level of inquiry and verification required from a broker exceeds that expected from a lender's direct staff,” Mr Hewitt told The Adviser.

The consultation on the proposed extension of the BID – and several other significant changes to the Credit Act – is open until 20 November 2020.

Among the other changes proposed – aimed at reducing the time it takes for individuals and small businesses to access credit while “maintaining strong protections for vulnerable consumers” – include:

• amending the Credit Act so that responsible lending obligations only apply to small amount credit contracts (or equivalent loans) by ADIs and consumer leases beginning on 1 March 2021;
• imposing lending standards for non-ADIs, as part of the new risk-based regulatory framework for consumer credit, based on similar obligations to those imposed on ADIs; and
• amending the Credit Act to provide the Treasurer with the power to determine standards specifying requirements for a credit licensee’s systems, policies and processes in relation to certain non-bank credit conduct.

You can find all the proposed reforms via the Treasury website, here.

[Related: BID extension ‘the right thing to do’: FBAA]