The MFAA is seeking information from ASIC regarding credit variations in order to clarify when responsible lending obligations are triggered.
The industry representative says increases to a credit contract instigate responsible lending obligations, but if a borrower wishes to vary the terms of a loan, the requirement for disclosure documents will depend on the circumstances.
“Brokers should note that if a lender elects to document by a new contract, responsible lending is triggered for brokers and for lenders.”
The MFAA says a variation to a credit contract is preferable to a fresh contract, which would require the broker to prepare a new Preliminary Credit Assessment and other disclosure documents.
They say the lender's obligation to complete new disclosure documents is also triggered.
The MFAA says it will be lobbying:
1. Lenders not to use new contracts where a consumer request is only for a variation; and
2. Treasury to amend the law to state that if a variation is documented by a new contract, it is still a variation.
The MFAA says it acknowledges that lenders have different practices in the way they give effect to requests for changes to existing credit contracts and says that, in some instances, the same change can be given effect to via a variation to the existing contract - or, alternatively, as a new credit contract with the same credit provider.
“However, as a general position, we would consider that a broker's responsible lending obligations would be triggered where they are assisting or suggesting the consumer enter into a new credit contract, regardless of whether the change could have alternatively been given effect to as a variation to an existing contract.”
Whether or not the variation is considered to be a suggestion that a consumer remain in a particular credit contract is a question of fact, determined on the circumstances of each individual case.
“This would take into account a number of factors, including: the purpose of the consumer, the incentives of a broker in suggesting a variation to an existing contract as opposed to recommending a new credit contract, or whether the change is so minor it would not materially affect the circumstances of the consumer.”