AFCA has told ASIC that the role of a mortgage broker is “not very well understood” among consumers who issue complaints through the dispute resolutions body.
The Australian Financial Complaints Authority (AFCA) has appeared before the Australian Securities and Investments Commission (ASIC) in its second round of public hearings to provide guidance with respect to the regulator’s update to its responsible lending guidance (RG 209).
AFCA’s CEO and chief ombudsman, David Locke, told ASIC that since commencing operations in November 2018, AFCA has received over 26,000 complaints relating to the conduct of banks or other credit providers – making up almost 50 per cent of overall complaints.
Mr Locke added that of those complaints received in the nine months since AFCA launched, approximately 2,310 related to alleged breaches of responsible lending – a 52 per cent increase when compared to the previous nine months under the Financial Ombudsman Service (FOS) and the Credit and Investments Ombudsman (CIO).
“From our experience, we’ve seen significant issues around responsible lending,” Mr Locke said.
“We’ve seen cases where lenders fail to undertake even a basic level of inquiry into whether a loan met a consumer’s objectives.
“We’ve also seen cases where lenders ignored clear red flags, indicating that the consumer would be unable to service the loan.”
When asked to identify the scale and nature of broker-related complaints, AFCA’s lead ombudsman, banking and finance, Evelyn Halls, noted that the EDR scheme has “systemic issues open in relation to broker conduct”.
Ms Halls said the issues related to failures to disclose conflicts or commissions, alleged shortcomings in the mortgage assessment and application process, and allegations of misconduct or the falsification of documents.
“Wherever there’s an intermediary, there’s a potential for additional issues to arise, so obviously there’s a question about what’s been passed on and what additional information was known,” Ms Halls said.
The lead ombudsman claimed that in her experience, broker-related complaints have been associated with a lack of understanding regarding the responsibilities of a mortgage broker in the home-lending process.
“Certainly, one issue we see is that complainants are often very unclear about the role of the broker and the understanding of agency, obligations and duties.
“[So], in that respect, it is not very well understood by consumers at all.
“Often when they come to us, they’ll feel that something went wrong in the application process, but they won’t easily be able to identify which party may or may not have been at fault.”
However, chief ombudsman Locke sought to emphasise that broker-related complaints made up a small proportion of overall matters concerning alleged breaches of responsible lending obligations.
“Most of the cases don’t involve brokers,” he said.
“[Those that do] are often about the broker omitting to provide the lender with additional information provided by the borrower or misrepresenting the borrower’s financial situation.
“Those are the most common issues that we see with regards to brokers, but it is very much a minority of the responsible lending matters that we’re getting.”
Uncertainty over a broker’s obligations in the lending process has prompted the third-party industry to call for greater clarity in ASIC’s new guidance in order to provide brokers with greater legal protection.
Speaking to The Adviser following his appearance before ASIC, Connective director Mark Haron observed: “I think what’s key for the industry is to have that level of surety around it so that, from a legal standpoint, we know that we are meeting our legal requirements in respect to responsible lending.
“[It] will also be vitally important in terms of brokers’ dealing with AFCA, where AFCA seems to have a different understanding of responsible lending than seems to be the current situation with the current RG 209.”
He continued: “A great example of that is the Westpac court case. ASIC said, ‘These are our rules,’ and the court said, ‘those rules aren’t very good.’
“A broker is not Westpac; we don’t have the money to be able to take on ASIC in court like that. And that’s what worries me and why Connective, and a number of many others in the industry, are working hard on this consultation process with ASIC.”
ASIC’s second round of public hearings have now concluded, with the corporate regulator expected to publish its new guidance before the end of the calendar year.