“Clear as mud,” is how several readers described yesterday’s ASIC response to concerns surrounding client employment verification requirements.
Gadens Lawyers partner, Jon Denovan, says he sympathises with brokers but argues that common sense should prevail.
“Ordinarily, if you get a PAYG and you look at that, that would be sufficient in the absence of it raising any peculiar concerns. You certainly don’t need to go ringing the employer.”
However, if there’s anything that’s even ‘slightly dodgy’, Denovan says brokers need to make further enquiries.
“If this fellow gives me a PAYG slip, but I look at his bank statements and they’re not the same, then I need to make further enquiries. Also, if the consumer is in any way disadvantaged, like they’re really highly-geared, or they speak English poorly, or they’re poorly educated, then you have to make more enquiries because the law is assuming that they need more help.”
Denovan says that while it largely comes down to common sense, it is a change from the old situation, where, before ASIC regulation, ‘you could cop what you were given’.
“You can no longer cop what you’re given, you have to receive, think and decide – and if you fail to go through those steps, then you’re in breach of your licence regulations. My favourite test is I put myself in the borrower’s situation and I say, ‘if I was a borrower, would I borrow this money?’ That’s what you’ve got to do at the end of the day to ensure that the loan is not unsuitable.”
Surprisingly, Denovan doesn’t believe ASIC could be any clearer in defining adequate employment verification.
“We’ve talked a lot about getting further guidance, but the whole problem is that it is scalable. The example is, if I came to you and said ‘look, I’ve been employed at the same job for 20 years and I want to borrow a 20% LVR’, then the enquiries that you would make would be completely different to if I’d been on the job six months and I want to borrow 95% LVR. In between those two extremes, there’s a lot of scalability – and common sense needs to prevail…Whether it’s good law or not is a different bloody question.”
The reality, he says, is that people come to brokers wanting brokers to find a loan and many brokers find it tough when the law stipulates that you aren’t supposed to help certain people.
“I mean, it’s a very strange arrangement, isn’t it? I think brokers are [confused] and they get different messages from different lenders – and I think some of the people who go around providing compliance services scare the sh*t out of [brokers] by making it all complex. But I think that, at the end of the day, it’s like my business; it’s heavily regulated being a lawyer. I just use common sense and act honestly and I’ll be apples. That’s what the brokers need to do: use common sense and be honest, and you’ll be apples.”
On a final note, Denovan says his sympathy lies with the broker community in dealing with often complex lending regulations and offers one final piece of advice.
“I think maybe the only solution might be to drink more.”