Brokers need to be diligent when it comes to documenting client meetings, according to a specialist law firm, as increasing consumer awareness has led to an increase in claims against mortgage brokers.
Michael Gapes, a partner of Carter Newell Lawyers told Australian Broker
that there has been a “marked increase” in the volume of claims against mortgage brokers, due to the recent reporting of high profile cases causing an increase in consumer awareness.
“…there have been some fairly spectacular and highly publicised claim against mortgage brokers in recent months. For instance, two brokers in Footscray [Myra Home Loans Pty Ltd] have been arrested and charged with conspiracy to defraud. ASIC claims that they falsified more than 300 loan documents in support of applications totalling $110 million, and they’re potentially facing 15 years imprisonment if convicted”.
“Then there was the Sahay one [Shiv Prakash Sahay] which was $7 million and the Prasad one [Shashi Kanta Prasad] where she pleaded guilty to producing 41 fake documents seeking about $3.6 million, and she was banned for 10 years.
“…those three matters were very highly publicised. The publicity that those, and other matters, generated may have prompted some consumers to consider making their own complaints about their broker.”
The most common type of claims Carter Newell are receiving against brokers relate to transparency and product recommendations. According to Gapes, a perceived lack of transparency about bank ownership of broking groups concerns consumers, who feel ownership could affect the broker’s product recommendations.
“Consumers often don’t understand why a particular product has been recommended to them by their broker and they may well find out from a third party down the track that a different product would have given them a lower interest rate. Often they might not understand, for instance, that they don’t meet the criteria for that lower interest rate. What we’re finding – and we do a large volume of these claims – is that there is often a lack of comprehension on behalf of consumers about why a particular product has been recommended to them.”
As a result, Gapes says it is absolutely critical for brokers to be diligent and comprehensive when it comes to documenting client meetings to avoid any unnecessary trouble.
“That is why we say to our broker clients that it is absolutely critical that they file note all of their discussions with their clients and that those file notes are comprehensive, they are signed and dated, and they represent a true reflection of the entirety of their discussions with their clients.
“And best practice would certainly dictate that brokers confirm any verbal advices provided to their clients about product selections in writing and explain why those recommendations have been made in detail. Brokers should invite their clients to come back to them if they have any further queries or require clarification about any of the recommendations or the contents of that letter.”
But despite the increase in claims being brought against brokers, Gapes says that there has been no corresponding increase in the amount of brokers being brought to task.
“Whilst there has been a marked increase in claims against brokers, very few claims actually result in any damages payout or any actual findings of breach by the broker. In responding to these claims, it is often a matter of explaining why particular recommendations were made about a product and giving the client some context as to why the broker has made those recommendations. Often, once we’ve done this, the complaints are not pursued," he told Australian Broker
“But having said that, having a letter of complaint or claim brought against you is an incredibly stressful experience.”