How good are your systems?

Mortgage brokers will need to ensure that their processes provide enough evidence that they’ve assessed the suitability of each borrower’s loan under the Credit Contacts and Financial Services Law Reform Bill.

Monday, March 31st 2014, 6:00AM

by Susan Edmunds

The Bill was reported back from select committee and progress on it will resume when the House returns on April 8.

Financial Services Federation executive director Lyn McMorran said her members broadly agreed with the principles of the bill and did not envisage any difficulty in meeting its Responsible Lending Code once one is finalised.

But she said there were concerns about how it would be policed when it was in place. That responsibility will rest with the Commerce Commission.

McMorran said: “As is the case with all the financial regulation over the past few years, the responsible people, whether that’s lenders or financial advisers, deposit takes or investment managers, the responsible people always comply comply… it’s the unethical ones who always find a way around it. The key to stopping that is how they enforce it.”

She said everyone in the market would have a role to play in reporting substandard activity.

The main change for mortgage brokers would be the requirement for extra vigilance in demonstrating the way they are behaving responsibly, she said.

She said brokers tended to be the initiators of loans and they would need to be able to prove that they had adequately assessed whether borrowers could meet their repayments. “Do their processes provide enough evidence that they’ve had those significant conversations with borrowers, verified it through bank statements and credit checks?”

The select committee stage gave the Bill more powers including a prohibition on charging borrowers commission for credit-related insurance when that insurance is to be financed under a consumer credit contract.

McMorran said that was a major concern and was a common situation. But consumers could miss out on protection with the law change. “Why would you offer insurance if you’re not going to be paid? We have insurance companies as members, who provide products into financial services businesses. One said 100% of its credit contracts insurance is funded by the loan, that accounts for a significant amount of that particular company’s business.”

McMorran said lending and insurance should be encouraged to go hand-in-hand to offer protection for consumers. “I can’t understand the thinking behind it at all.”

She said another concern was the addition of a clause that allows disputes resolution providers to award compensation for non-financial losses, such as inconvenience.

« Low-equity fees face legal questions

RBNZ could relax LVR rules: Westpac »

Special Offers