Revelations that a South Australian finance broker has been banned from the industry for six months after using inappropriate actions to enforce a fee for service has left many brokers confused about their rights when it comes to claiming service fees from clients.
Yesterday, Australian Broker reported that Alexander Dryden, of West Croydon, has had his Australian credit licence suspended for six months after ASIC surveillance found he threatened to lodge a caveat to induce a consumer to pay him for his credit assistance, as well as having failed to lodge his annual compliance certificate in a particular time-frame.
A number of readers expressed concern that this implies brokers have little legal backing when it comes to enforcing fees for service provided to clients.
Gadens Lawyers partner, Jon Denovan, says the NCCP Act explicitly states that brokers are not allowed to lodge a caveat for credit assistance.
“There’s a specific section in the Act…which says that ‘a licensee must not lodge or threaten to lodge a caveat on land to induce the customer to pay an amount to the licensee for the licensee’s credit assistance or other services’,” explains Denovan.
“So you’ll see there that, if you’re a licensee, you can’t put a caveat on for credit assistance, nor for other services. Even if you’re charging for these other services -general credit advice or cleaning their bathroom, etc - you can’t put a caveat on. Once you are a licensee, you cannot put a caveat on, full stop.”
Furthermore, he says, the legal ability for brokers to enforce fees for service is somewhat murky.
“What the NCCP deals with is charging a fee for credit assistance. ‘Credit assistance’ is a technical term which means to suggest a specific loan through a specific lender to a customer. It’s me saying, ‘I reckon you should get a CBA Rocket Home Loan’ – a specific contract with a specific lender. If that’s the case, then that’s what the NCCP is regulating.”
However, issues arise when brokers work outside the realm of ‘credit assistance’ and move into other areas.
“[There’s been some talk in the media] about people charging for ‘credit advice’ or ‘budget management’. This is quite a different thing – it’s an activity that’s got nothing to do with arranging a loan. And that activity, like real estate spruiking, appears not to be regulated.”