BID extension ‘the right thing to do’: FBAA

Mr White noted that the mortgage broking industry had raised concerns with Treasury when the draft legislation for the best interests duty was first released last year. These largely related to potential unintended consequences of the legislation’s wording.

As many aggregator and association groups outlined in their responses to the draft legislation, the duty only related to credit assistance provided by a mortgage broker (those that carry on a business of providing credit assistance in relation to credit contracts secured by mortgages over residential property).

The industry had therefore warned that this wording would therefore create an uneven playing field as it would not apply to brokers or credit representatives that do not “carry on” a mortgage broking business (i.e. finance brokers) even if they offer mortgage broking services.

For example, Connective director Mark Haron told The Adviser in December last year: “Consumers who use a broker [that] is not classified as a mortgage broker (but one who still writes the odd home loan), would probably expect that the broker would be acting in their best interests duty as they are getting a home loan, but that wouldn’t be the case. 

“So, it’s creating an uneven playing field when it comes to the application of the best interests duty. My big concern is that there are some consumers that are going to be exposed to unscrupulous characters that are going to use this as a loophole to provide home loans and other consumer products and avoid having a best interests duty in the process,” he said. 

The FBAA’s Mr White outlined that while the industry had not been forewarned that the BID would be extended to all credit assistance providers writing consumer credit, the move was “righting a wrong”.

“We didn’t know it was coming, so it was a bit of a surprise [when it was released]. But, reflecting on it, it probably should have been this way to start with,” he said.

“At the end of the day, it’s the right thing to do. There shouldn’t have been this segregation between businesses; it should have always applied to the product, because the royal commission was only focused on mortgages. It just got further complicated further down the line with Treasury and then even further complicated through the regulatory guide from ASIC.

“The industry knew straightaway of the imbalance that was being caused. We had raised this issue when the components of the bill and the explanatory memorandum were released at the end of last year.

“We had said that it would create an imbalance between a finance broker and a mortgage broker... because it meant that if a mortgage broker wrote a car loan for a consumer, for example, it would be captured by BID, but a finance broker who might write the same consumer car loan on a one-off occasion would not because their primary business was not a mortgage broking business.”

Mr White continued: “We thought that if a mortgage broker has to apply best interests duty to car loan (or consumer assets such as caravans, jet skis, motorbikes etc) – as they will need to do from 1 January 2021 – then a finance broker should have to as well (as long as its just for consumer purposes, which is what the consumer credit reforms are all about).

“So, while it wasn’t expected. I don’t think it’s the wrong decision.”

Short time frame to prepare and respond

However, the FBAA head did lament that the proposed changes did not provide credit assistance providers that were not previously expecting to have a new regulatory regime applied to them (such as finance brokers that write consumer loans) with much time to prepare for it. 

The proposed reforms will see the BID extended to apply to all relevant credit assistance providers in relation to the provision of credit assistance to a consumer on or after 1 March 2021 (whether or not the assistance was sought, or commenced being provided, before that day).

“The problem is that now, those who didn’t previously know they were going to be covered by BID are trying to catch up with it, and they really aren’t prepared for it. 

“It’s just a pity that it wasn’t done from the off so that we could have provided more guidance and certainty to the industry as to who would be coming under BID. Because now, it’s a case for many brokers to rush to catch up,” he said.

Mr White outlined that the FBAA was now in consultation with executives in the motor finance arena to outline the new requirements and understand their views on the matter before submitting a response by the 20 November deadline.

The FBAA MD noted, however, that the two-week consultation period was shorter than most consultations – and could reflect the Treasury’s expectation that there would not be major amends needed to finalise the legislation before Christmas.

“All they seem to be doing is fishing to see if there is anything glaringly wrong that needs to be fixed. Otherwise, it seems that the deal is done,” he said.

[Related: Treasury seeks to extend BID to all credit assistance providers]