Brokers divided on commercial lending legislation

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It’s early days yet on the draft legislation governing commercial loans – but broker responses are already varied.

Yesterday, Australian Broker reported that the proposed law changes which could end up restricting access to business credit and potentially require them to ask borrowers some awkward questions.

In its current form, the legislation would require brokers to ask clients whether they’re ‘prepared to lose their home’ when signing on for a commercial loan – something which Gadens lawyer’s Jon Denovan describes as a ‘strange’ and subjective question.

Ranjit Thambyrajah, of Acuity Funding, says he’s concerned that the law change could backfire on brokers dealing with ‘unscrupulous borrowers’.

“Every time a customer comes to me for assistance, I do everything I can to keep them from having to lose their home. If, down the track, they do – it’s part and parcel of the business. I don’t think [asking borrowers whether they’re willing to lose their home] is a logical approach because a business client will risk anything if they want to, but if the time comes that they have to sell their home they will try and save it. They could say ‘the broker didn’t explain this to me’.”

However, Healthy Lending’s Scott Woodhouse says it’s not so much legal repercussions that he’s concerned about – he just can’t see how borrowers will agree to the query in the first place.

“I’m all for regulation, it weeds out the guys who don’t know what they’re doing. But I’m a bit miffed that they’re thinking about asking people whether they’re prepared to lose their home – everyone’s just going to say no.”

Another controversial angle surrounds the potential requirement for commercial brokers to obtain a permit in addition to their ACL.

Thambyraja says doing so is aiming too closely in the direction of a nanny state, where borrowers aren’t expected to use common sense.

“I think there’s got to be a point where a person needs to be able to think for themselves and not rely on government protection. Legislation that protects consumers, I’m all for. Legislation for those who want to take the risk for return, I’m against.”

But Woodhouse says he’d be happy to obtain a permit, adding that it could help savvy brokers more visible.

“I think a lot of people will think the permit is over-the-top, but I think anything that makes good brokers stand out from the run-of-the-mill brokers is a good thing. I think what the government is proposing is a bit over-the-top, but as long as there’s a bit of sense in there then I’m fine for it.”

Mark Churchill from Churchill Financial Services says he isn’t particularly bothered either way when it comes to potential permit requirements – he just doesn’t really see the point.

“I think the commercial side of the industry is pretty unregulated – it’s up to the banks to regulate brokers. There’s not a massive amount of brokers out there who do the big side of the business so I think we’re pretty much self-regulated. We’re probably more regulated by the banks than by any legislation.”

 

 

 

 

  • Lyn Turner on 17/01/2013 1:03:47 PM

    Contrary to current boasts, there has only been one conscientious representative of a broker organisation attending Treasury Consultation Group meetings. However, both major broking organisations' top leadership have provided very little support to other industry sector organisations who have been working tirelessly to stem Minister Bill Shorten's anti-finance business crusade.

  • Peter White - FBAA President on 17/01/2013 12:28:39 PM

    Dear Country Broker - thanks for the first sign of support from you .... but I made no mention of the MFAA ..... albeit they sit with us on the same committees with government and regulators. This area of business and commercial lending together with Motor Finance (under POS ... which the disucssion paper on the same was released by Treasury yesterday) are widely known within government/regulators as specialities of mine hence our unique closeness to this. But I prefer to wait to make informed commentary, and not early guesses which history has shown to be in error.

  • Please Explain on 17/01/2013 11:46:54 AM

    I have taken the paragraph below directly from the ASIC website the part i like the best is "for example, the obligations to act efficiently, honestly or fairly or to have adequate resources"

    What a complete joke.
    -----------------------------------------

    The other general conduct obligations in section 47 of the Credit Act will not apply to persons engaging in small business credit activities (for example, the obligations to act efficiently, honestly or fairly or to have adequate resources)

  • Country Broker on 17/01/2013 11:40:20 AM

    oh dear , Peter White , how do you know what the MFAA are doing or not doing about this and yet I agree with you .

    This legistation is not dangerous to brokers with the experience and the intelligence to be transparent and do a professional job .

    What is needed is for the aggregartors and other industry commentators to stop advising brokers to look at expanding into Commercial when they are not experienced or qualified to do so. Please identify the Brokers with the experience and support them by setting up referral networks within the industry so we can ensure a professional job every time and let the home loan brokers gain the experience.

  • Peter White - FBAA President on 17/01/2013 11:23:40 AM

    People this regulation is in draft form and it is important not to jump the gun on this and wind up with a mis-fire. The FBAA has been dealing closely with Treasury on this matter for some 2.5yrs now and is the sole industry voice with any practical finance broking experience whatsoever in commercial and or business lending from that time. I myself wrote my first business loan around 1981 and is an area of lending specialisation of mine to this day.
    Firstly, if you have ever been involved in full doc business or commercial lending as a broker who acts in a clear and transparent manner then you have little to worry about and little change.
    Secondly access to business/commercial credit WILL NOT become harder to access and any impact is for loans under $2m and only in certain circumstances.
    Thirdly the work required by brokers under this draft regime will not place any additional 'paperwork' burden on broker who today already is transparent and thorough in their submissions for credit in this sector.
    Lastly the biggest issue is the permit regime being proposed and is something the FBAA solely is challenging Government on as we speak.
    More once known and appropriate to detail further.
    So relax, take a breath, have a coffee and lets keep writing more business as skilled professionals in this sector.

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