Rapid changes continue impacting the mortgage industry.
Here's a quick summary on some recent developments.
Mortgage early exit fees
ASIC has issued Consultation Paper 135 which considers whether
mortgage early exit fees are unconscionable or unfair contract
terms. Submissions are due by 9 August 2010.
ASIC intends to issue a Regulatory Guide after it has considered
responses to the Consultation Paper.
Despite some emotive comments in the press, CP135 is not a
general attack on deferred establishment fees
(DEFs) or early repayment fees
The key propositions in CP135 are:
establishment and early repayment fees should approximate costs
only true establishment fees should be classified as
establishment fees (or deferred establishment fees when payment is
better disclosure will assist establishing that fees are not
unfair or unconscionable.
It is important to recognise that the law impacting on DEFs and
ERFs has not materially changed. However, the commercial climate
has changed because of:
increased awareness of the ability to refer disputes to
increased risk of class actions (a major threat to smaller
a more active regulator (ASIC).
The MFAA has formed a working party to make a submission.
Lenders and managers who have credit contracts containing DEFs and
ERFs should review their contracts.
Uniform responsible lending standards
The new name on everybody's lips is 'Fact Find'
– a reference to documents used to collect information to
enable compliance with the responsible lending (unsuitable loans)
As we have been told many times (too many times), the assessment
enquiries about the borrower's requirements and
enquiries about the borrower's financial situation
The controversial issue is whether it is appropriate to ask
specific additional questions, or if it should be left to loan
writers to make a case by case judgement on what kind of enquiries
and verification are appropriate.
The big impact from responsible lending will not be felt until 1
January 2011 when ADIs and RFCs are subject to the
The MFAA has established a working party to try to agree upon
some common standards. Significant inefficiencies, cost, and risk
will arise if every lender adopts a different approach.
Credit representative or licensee?
The ASIC figures on how many businesses registered under the
NCCP Act does not give a good guide to how many businesses are
likely to end up being licensed. A significant number of businesses
have yet to decide whether to proceed with a licence application or
become a credit representative.
A clearer picture will probably not emerge until December as
registered businesses make a decision on which way to go.
In the meantime, the MFAA has released a free licensing kit for
its members. Small businesses should have no problem lodging their
licence applications without external assistance.
Gadens Lawyers Compliance Services (contact Lauren Scicluna on
(02) 9931 4925 or firstname.lastname@example.org) can assist small,
medium, and large businesses who need assistance in applying for
the licence and maintaining compliance once licensed. The services
include compliance plans, training, and business processes.
The Gadens Compliance Services allows you to choose how much or
how little you do. The service provides a fixed price, flexible
Small broking businesses
Small broking businesses which elected to register pending a
final decision on whether to obtain a licence generally have not
needed to appoint any credit representatives. This is because their
loan writers are either directors or employees of the company that
has been registered.
These businesses need to remember that if they decide to become
credit representatives, both the business and any loan writers will
need to be appointed as credit representatives. It will be
insufficient for the company only to be appointed because whereas a
registered/licensed person's directors and employees are
automatically authorised, that is not the case for credit
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