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A new law commencing on 1 November 2018 prohibits arrangements
where introducers are provided with a delivery rate to which
introducers can add a margin to determine the borrower rate –
subject to some exceptions. Lenders, brokers, and other introducers
need to ensure that their commission arrangements do not breach
these rules.
The ASIC Credit (Flexible Credit Cost Arrangements)
Instrument 2017/780 inserts new provisions into the
National Consumer Credit Protection Act 2009.
The new law prohibits lenders directly or indirectly entering
into a flexible cost arrangement defined as an arrangement under
which both of the following apply:
the benefits paid to an introducer
are determined in whole or in part by the interest rate; and
the introducer or an associated
person can set or influence the rate.
In addition, if there is a flexible cost arrangement, lenders
must not pay introducers a fee which exceeds the
origination/administration fees agreed prior to the introduction of
the customer. Lenders must keep a record of the basis for
determining these fees for at least seven years.
Variations to interest rate influenced by introducers are not
prohibited:
which reduce the interest rate up to
2% per annum from the base rate quoted by lenders (being a
rate set prior to the introduction of the borrower); or
where benefits paid to introducers
are the same as would be paid if the base rate applied; or
where benefits are paid to:
directors or employees of the lender
/ lessor; or
related body corporates; or
directors or employees of related
body corporates.
The prohibition does not apply to home loans. However, home
loans is defined in the Instrument as meaning:
loans 100% used to purchase
residential property; or
loans to refinance loans wholly or
predominantly made to purchase residential property.
As a result all other regulated loans will be subject to the
restriction. For example, the prohibition would apply to loans
secured by residential property:
only partly used to purchase a home
(ie there was some money out for personal, domestic, or household
purposes);
only partly used to refinance loans
wholly or predominantly used to purchase residential property (ie
there was some money out for personal, domestic, or household
purposes).
This is a short summary of reasonably complex provisions.
Businesses who may be affected by this prohibition should seek
expert advice.
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