Yesterday’s article about Sydney-based broker, Arthur Sperling, having his licence revoked after ASIC alleged that he failed to independently verify income and employment details before submitting loan applications, raised a number of questions surrounding the regulators expectations of brokers when it comes to this particular part of the loan application process.
One reader, known simply as 'Peter', commented that this was a ‘grey area’ and that while ASIC was unclear as to whether Sperling falsified or was given false information by his clients, he’s nevertheless unsure of what ASIC’s exact requirements are.
“Is it up to the broker to call the clients employers to verify the employment details? How far does ASIC want the broker to go? I'm all for regulating dodgy brokers but treating clients like criminals is not good for our business."
In response to this and other queries surrounding employment verification, ASIC says the National Credit Act requires brokers to meet responsible lending conduct obligations.
“The key responsible lending obligation is that credit licensees must not suggest, assist with or provide a credit product that is unsuitable for a consumer,” says ASIC spokesperson, Andre Khoury.
This means that, before a broker suggests, assists with, or provides a new credit contract or lease to a consumer, s/he must:
Make reasonable inquiries of the consumer about their requirements and objectives in relation to the credit contract;
Take reasonable steps to verify the consumer’s financial situation;
Based upon these inquiries, assess whether the credit product is unsuitable for the consumer and only proceed if the credit product is not unsuitable, and
Give the consumer a copy of the assessment if requested.
According to ASIC’s Regulatory Guide 209, Section B, “The obligation to make reasonable inquiries, and to take reasonable steps to verify information, is scalable—that is, what you need to do to meet these obligations will vary depending on the circumstances.”
“We expect that you will need to make all inquiries and verifications that are necessary for you to be satisfied that the provisions will not be breached if the consumer enters into the contract. We consider these to be minimum inquiry and verification requirements that may not be ‘scaled down’.”
For example, if a credit licensee offers a debt consolidation service to consumers, which includes a review of current debts and how these could best be structured, ASIC says they would expect them to undertake a greater level of inquiries and verifications to gain a more comprehensive understanding of a consumer’s financial situation.
“We expect you to decide what inquiries it is reasonable for you to make in order to meet your responsible lending obligations for a given transaction. However, when considering whether you have conducted reasonable inquiries, we will look at whether you have made inquiries about the kinds of issues listed [below].”