The head of a major mortgage brokerage says that the industry is selling itself short by adhering to “odd” and outdated credit laws.
Responsible lending has been a key focus of the financial services royal commission, which wrapped up its third round of hearings on Friday (1 June). While small business lending was under the spotlight, brokers continued to be drawn into the inquiry.
The first round of hearings focused heavily on the use of the third-party channel and followed extensive scrutiny from the Productivity Commission earlier in the year.
While the Combined Industry Forum (CIF) has been working on behalf of the mortgage broking industry towards a solution of self-regulation, Loan Market executive chairman Sam White believes more needs to be done.
“It’s time for clarity around broker obligations as stated in the National Consumer Credit Protection Act (NCCP),” Mr White said.
“The existing standard of ‘not unsuitable’ has always been viewed and as an odd turn of phrase. It is the wrong way to describe a broker’s obligations and has been wrong for a long time. We sell ourselves short by having such a low bar — particularly when as an industry we do so much better than being ‘not unsuitable’.”
The issue was also brought up by the Consumer Action Law Centre (CALC) in its submission to the royal commission. The group argued that the standard for responsible lending, particularly for mortgage brokers, is inadequate and is a driver of conduct that does not meet community expectations.
When asked by The Adviser whether they believed the legal standard for brokers should be raised, both heads of the two main broker associations agreed, pointing to the CIF’s work on defining “good consumer outcome”.
“The CIF has defined what is a good customer outcome,” Loan Market’s Sam White said. “Our belief is that the needs of the customer should be placed above the interests of everything else.
“Exactly how the lawyers want to define that remains to be seen, and Loan Market will be prominent in discussions and debates on this wording and the framing of recommendations as we need to make sure the customer is at the core of everything we do and stand for.”
However, history shows that finding an appropriate replacement for “not unsuitable” could be difficult. The FBAA’s Peter White recalled that when the NCCP was first being discussed at the consultation committees with Treasury in 2008, there were “huge debates” over what the standard requirement should be.
He said: “You just can’t say it has to be ‘suitable’ because the argument comes down to: How suitable does it have to be? — i.e. does it have to be ‘very suitable’, or ‘completely suitable’, or ‘the most suitable’?
“Because what happens if it’s ‘most suitable’ is that it may differ from one broker to another. It can only be what is ‘most suitable’ in the suite of products that the broker has access to. So, there might be a more suitable product outside of their panel, but they might not know that or might not have access to it.”
Mr White concluded that the issues needs to be “very carefully thought through”.