Brokers on notice about verifying living expenses

by Julia Corderoy26 Nov 2015
Mortgage brokers should be on notice after senior executives from ASIC told an NCCP compliance expert that the regulator expects all brokers to verify a consumer’s expenditure with the same scrutiny they verify income.

Speaking to Australian Broker, the director of QED Risk Services, Greg Ashe, said he met with two senior executives from ASIC to discuss whether the regulator would be insisting on greater procedural detail from credit licence applicants on the verification of living expenses. At the moment, a broker often enquires about a consumer’s living expenses then verifies it against reasonable benchmarks. 

However, Ashe told Australian Broker he was astonished when ASIC said they already expected that brokers were seeking bank statements and credit card statements from consumers in order to verify their expenditure.

“It was mutual astonishment really. I was completely astonished that that is what their expectation was and they were completely astonished that the industry is not already doing this. 

“They were of the strong impression that they have already made it clear enough that that is what was expected. They were mortified. I said to them that if they expect that then they better put something out there.”

According to Ashe, chapter 3 of the NCCP Act requires that brokers must “take reasonable steps to verify the consumer’s financial situation” but this requirement does not differentiate between income and expenses. So while Ashe says a broker might decide to take extra steps to verify a client’s expenses in some cases, it is not necessary – or specifically stated in the law – to do this all the time.

“I am certainly not saying that a broker would never want to do this, and this is the beauty of being a broker – you get to have these real conversations with the consumer and establish a rapport with your clients. 

“So if a broker thinks something is a bit odd because their client is saying they earn this much and spend this much and it doesn’t sound right then that might be a time when the broker asks to go through their budget in detail and ask for bank statements and credit card statements. There are certainly situations where a broker would do that but to say you have to do it every time, I don’t think that is necessary or that is the law. 

“If the lawmakers expected us to do that then they probably would have specified it because they did specify it for small amount credit contracts, or payday lending. They specified that you must get three months’ worth of banks statements. They have not said that for anything else.”

According to Ashe, the law for Small Amount Credit Contracts (SACCs), also known as payday loans, changed in 2013 to specifically require lenders to seek three months’ bank statements from a consumer. This was only for SACCs, not all credit.

But it isn’t only brokers who are expected to do this. Ashe told Australian Broker that ASIC expected this was happening at a branch level too.

“They thought this was already happening at branch level in the big four banks too. In fact, they specifically asked me about the big four banks. It was only about six months since I last switched my mortgage to a different big four lender and I certainly wasn’t asked to provide these details, so it certainly isn’t happening at the major banks.” 

However, Ashe is concerned that brokers may be an easier target for ASIC.

“If ASIC has enough resources to after Commbank and took them to court, Commbank would wheel out decades and decades of default data and their high-powered mathematicians from Martin Place. By using science they would prove to the court that all day, every day, this customer who exhibited these characteristics, according to their scientific model, should have been able to afford that loan," he told Australian Broker.

But when asked if he thought it could destroy the broker value proposition, Ashe said it will be a lot more work for the broker, but it shouldn’t destroy the client experience.

“If all brokers had to do what ASIC is expecting, it would add at least another hour to each loan. I think if this all does pan out the way ASIC wants, brokers will just have to work it into their workflow. 

“Brokers will still be able to make it a positive and friendly customer experience but it will just be more documents and information that brokers will have to ask their clients to provide. Like all of these things, I think it is up to the broker to remodel their processes so that it is still a really positive experience outwardly to the consumer. It is going to create more work for the broker but the consumer doesn’t need to know about that.”


  • by Astonished 26/11/2015 8:53:39 AM

    Are bank staff and credit assessors at the lender also required to do this. Or is it only brokers that are being held to this standard?

  • by Regional Broker 26/11/2015 9:09:01 AM

    Amazing, I usually get the "everyday" bank statements to verify that savings are occurring and I do discuss budgets.

    What ASIC have done without issuing a clear guidance note is to bring in new interpretations of then law!

    We should not be surprised as this has happened before. Time for the MFAA & FBAA to ask ASIC for a very clear guideline!

    Also agree with the comment, are the bank sales staff and credit staff going to be under this apparent ruling as well?

  • by Astonished 26/11/2015 9:09:52 AM

    ASIC are a bunch of misfits. Gadens have made it clear that obtaining bank statements is not necessarily required (see "Responsible lending – consolidated guidance" issued by Gadens 17/11/2014).

    NCCP is a big joke and is penalising the 99% of brokers that have always done the right thing. We live in a complete nanny state. War on terror, war on drugs and now the war on brokers.