The non-bank sector has come under fire recently for alleged unethical practices relating to ‘at risk’ borrowers. Mortgage Business looks to separate the facts from the fiction.
Various sections of the media have been giving the non-bank sector a hard time of late, with reports of bullying behaviour that is allegedly seeing struggling borrowers draining their super funds to service their mortgages.
The non-bank sector’s Code of Conduct is now under the spotlight, with critics calling for a review. But industry professionals and the MFAA have come out fighting against the claims, asking the simple but fair question: ‘Where’s the proof?’
Over the past five years the number of approved early superannuation releases has jumped from 11,763 per year to 16,500. The increase has prompted people such as Amy Kilpatrick from the Consumer Law Centre (ACT) to question whether certain non-bank lenders are pressuring consumers to put their futures at risk for the sake of “keeping default rates down on the book”.
In a recent interview with The Australian, Kilpatrick suggested that non-bank lenders were not only encouraging struggling borrowers to gain early access to their super to meet mortgage repayments, but were also trying to lean on the prudential regulator, the Australian Prudential Regulation Authority (APRA), to agree to the early release.
Speaking to Mortgage Business, Kilpatrick says she has seen dozens of clients in the last twelve months who claim they have been encouraged to access their super funds to meet repayments rather than default on their loans. When asked to back up her claims, however, Kilpatrick said she was not in a position to provide Mortgage Business with any documentary proof … yet. But the problem is real, claims Kilpatrick.
“This is a serious issue, and we’re currently looking to APRA for answers. We want to see how many people have accessed their super to service their mortgages and to see a review of the code of practice to protect consumers,” Kilpatrick told Mortgage Business.
Hard up, or hard done by?
Under APRA’s current regulations, people who want to access their super before they turn 55 must meet the strict condition of experiencing ‘severe financial hardship’. They are also limited in the amount they can withdraw at any one time or in a single year.
But many in the non-bank sector dispute Kilpatrick’s claims as baseless. Lisa Montgomery, head of marketing and consumer advocacy at Resi, says encouraging clients to access their super would be an “absolute last resort for any lender”.
“I’ve not seen any evidence of this [practice] occurring in the non-bank sector … non-bank lenders have a low arrears rate too. We service the same clients as the banks, so it simply doesn’t fit that this is just a non-bank issue – if it exists at all.”
Phil Naylor, CEO of the MFAA, backs up Montgomery. He says the MFAA has not seen any evidence of the practice – and has not had any complaints to suggest it’s going on.
“The MFAA is keen to see its members operate at the highest possible standards, but the industry must be judged on fact and not assertions,” says Naylor.
Montgomery says part of the problem lies in the public’s inability to distinguish between the terms “non-bank” and “non-conforming”, with the former often unfairly targeted.
“The [non-bank] sector has evolved significantly since its inception, and while there continues to be a grey area between non-conforming and non-banks, we make for an easy target when there is a problem,” Montgomery says.
“The non-bank sector developed as a competitive alternative to the banks, not to focus on the credit impaired and financially stricken. There are many in the industry currently lobbying to have the term ‘non-bank’ redefined to provide an accurate reflection of the lenders operating in this space.”
The Consumer Law Centre’s Kilpatrick agrees that a working definition of non-bank lender would be a step in the right direction. “In our investigations, the term non-bank has been applied to institutions that are not authorised to accept deposits. When consumers go to a bank they understand who they’re dealing with – and this needs to happen with the non-bank sector.”
With the non-bank sector fighting to defend its reputation against these serious allegations, it seems the debate’s unlikely to cool down anytime soon. Mortgage Business will continue to monitor developments as the debate continues.
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