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Lenders should be given verification priority: 86 400

by Charbel Kadib5 minute read
86 400

Lenders should be able to rely on their own verification checks if a “discrepancy” is identified from the information provided by a broker, a credit provider has submitted to ASIC.

In its response to the Australian Securities and Investments Commission’s (ASIC) request for consultation regarding its push to update its responsible lending guidelines (RG 20), fintech lender 86 400 has called on the regulator to clarify its guidance concerning the “reasonable steps“ required when verifying a borrower’s financial position.

ASIC’s current guidance, which has been in place since 2010, states that “taking reasonable steps to verify information may lead to making additional inquiries about the consumer”, which may involve further enquiries where the information is “inconsistent” or outside the range for the consumer”.

86 400 has submitted that ASIC should enshrine a lender’s right to depend on its own verification checks for broker-originated home loans if a “discrepancy” is identified.

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“In the circumstance where an applicant provides information to a broker and the lender subsequently conducts their own verification, we think the lender should be able to rely on their own verified information in preference to the collected information without making further inquiry to resolve the discrepancy,” the lender stated.

“This may already be the intent, but we think the guidance could be clarified.”

86 400 has also asked the regulator to draw a distinction between the responsibilities of a lender and those of a broker when conducting a suitability assessment.

In paragraph 66 of its consultation paper (CP 309), ASIC noted: “We have [observed] that many licensees appear to consider it sufficient to identify a single, high-level purpose of use for the credit that is sought (such as buying a house or a car).”

The regulator went on to state that such practices do not accord with the obligation to make inquiries about a “consumer’s objectives” or the “consumer’s requirements”.

However, 86 400 has stated that lenders and brokers should not be held to the same standard, claiming that brokers have more scope to determine a borrower’s suitability for a credit product.

 “We think that there needs to be differentiation in the guidelines between the reasonable actions of a mortgage broker and a direct lender,” the fintech said.

“We agree that the types of enquiry suggested in paragraph 66 of CP 309 are reasonable for a mortgage broker who has a range of products which may be suitable for the borrower.”

86 400 continued: “The same test should not apply to a direct lender. It should be appropriate that a direct lender obtains enough information to be satisfied that its product (which has been selected by the potential borrower) is not inconsistent with the broad purpose of the borrower.

“If a lender has only one home loan product, then the broad purpose of the borrower ‘to purchase a house’ should be sufficient objective.”

The lender concluded: “A direct lender with a single product should be able to rely on the customer to determine whether their own requirements are satisfied by that product, provided that the product features are clearly disclosed.”

86 400 is currently awaiting approval from the Australian Prudential Regulation Authority for a full banking licence and has previously stated that it will distribute its credit products via the broker channel.

The fintech recently affirmed its committed to the third-party channel by partnering with Yellow Brick Road subsidiary Vow Financial.

[Related: Aggregators call for new approach to responsible lending]

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Charbel Kadib

Charbel Kadib

AUTHOR

Charbel Kadib is the news editor on The Adviser and Mortgage Business.

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