ASIC has promised a review of the authority given to EDRs following widespread complaints from lenders.
The regulator said it would review the power granted to EDR schemes following a white paper submitted by Matthew Bransgrove, a lawyer specialising in the mortgage market. In his white paper, Bransgrove has argued that EDRs such as COSL and FOS are given too much power under the NCCP, and could cause lenders to exit the market.
"Lenders will not risk their capital if they are denied access to the law courts and tied up in complaints (tacitly for the purpose of providing the borrower with a temporary respite rather than to address a genuine dispute) for indeterminate periods. This leads to tighter credit conditions. The less lenders there are prepared to lend then the less willing the remaining lenders are to lend," Bransgrove told Australian BrokerNews.
Currently, ASIC pushes lenders and borrowers to resolve disputes through EDR schemes rather than court action. However, Bransgrove said the industry's EDR schemes are not working, and are causing frustration among lenders.
"The feedback I have received has been entirely negative. Lenders and brokers alike bitterly resent paying the costs of FOS and COSL when, after many months, they are found innocent of any wrongdoing. Lenders are particularly bitter because complaints are deliberately drawn out in order to give the borrower more time. This being disingenuous and it makes them feel helpless and uncertain of their rights," he said.
Bransgrove said he is currently representing lenders with $1bn in capital, and is in discussions to represent lenders accounting for a further $3bn in capital. He pointed to complaints from the Australian Bankers' Association and Abacus, and said the industry has strong concerns about ASIC's guidance on EDRs.
Bransgrove expressed optimism that ASIC would change its guidance on EDR schemes, limiting the scope of their power.
"It is inevitable because the regulatory guide attacks the fundamental basis of mortgage security. ASIC admits in the consultation paper that they intended that the complaints process be used as a de facto mortgage moratorium device. It has nothing to do with complaints and everything to do with abusing the complaints process in order to give the borrowers more time when in financial hardship," he said.
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