Broker ban raises questions about employment verification: ASIC responds

by Mackenzie McCarty17 Apr 2013
Depending on the circumstances, ASIC says reasonable inquiries about a consumer’s financial situation could include inquiries about, among other things:

  • The consumer’s current amount and source of income or benefits (this would include the nature and length of their employment—for example, full-time, part-time, casual or self-employed—and whether all or part of the consumer’s income is sourced from payments under the Social Security Act 1991);
  • The extent of the consumer’s fixed expenses (such as rent, repayment of existing debts, child support and recurring expenses such as insurance);
  • The consumer’s assets, including their nature (such as whether they produce income) and value;
  • Any significant changes to the consumer’s financial circumstances that are reasonably foreseeable (such as a change in repayments for an existing home loan due to the ending of a ‘honeymoon’ interest rate period or other foreseeable interest rate changes, or changes to the consumer’s employment arrangements such as seasonal employment or impending retirement and plans to fund retirement—for example, from superannuation or income-producing assets);
  • Indirect income sources (such as income from a spouse) where that income is reasonably available to the consumer, taking into account the history of the relationship and the expressed willingness of the earning person to meet repayment obligations.

While much of this is up to the broker’s discretion, ASIC warns that it’s best to be on the safe side.

“We expect that you will be able to demonstrate that you have adequate processes in place to ensure that you make reasonable inquiries about the consumer. If you do not have appropriate processes in place, it will be difficult for you to show that you are meeting your responsible lending obligations.”

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  • by Brado 17/04/2013 10:19:01 AM

    that still didn't answer the questions posed... why cant they clarify what 'reasonable steps' means? reasonable is a very subjective method... what is reasonable to me may not be reasonable to you....

  • by Rach 17/04/2013 10:35:46 AM

    Well, that's clear as mud, lol!

  • by Mike Clarke 17/04/2013 10:51:29 AM

    So here is a scenario discussion surrounding employment check:-
    1) Broker locates consumer/borrowers' employers address & phone contact details.
    2) Broker already has confirmed clients home address & has pay slips & bank statements to confirm resi address & incomne source.
    3) Broker contacts employer payroll section via phone to check on borrowers terms & conditions of employment.
    4) Employer politely or otherwise declines to discuss / assist on grounds that it breaches 'privacy protection' laws.
    5) The loan is submitted & the lender fails to complete background employment checks. The loan is subsequently approved & borrowers receive disbursement of funds.
    6) Loan then falls into arrears & with lender follow up its found to have been falsified by the borrowers.

    Who carries responsibility? N.B. Broker made reasonable attempt at employment verification but is blocked by 'Privacy Laws'