'Not unsuitable' not enough: Gadens

by Adam Smith11 Mar 2011

A Gadens Lawyers senior partner has admonished brokers to go a step beyond NCCP regulations regarding the "not unsuitable" clause.

“Prior to 1 July, a broker saw their job as finding a lender who would lend the borrower some money. It didn't matter what the lender was all about," he told Australian BrokerNews. "Now the task is to make sure the loan is not unsuitable,” he said.

However, simply deeming a product ‘not unsuitable’ doesn’t go far enough in Denovan’s mind.

“If you're an MFAA member, you have to put customers into finance that's appropriate. I would think that despite the fact the legislation says finance has to be not unsuitable, if you get before COSL or ASIC and the finance isn't suitable, they will do you over,” he remarked.

Brokers should instead make sure they’ve put clients into the finance most suitable or appropriate for their situation, not just the deal most likely to reach settlement, he said.

“Not unsuitable isn't useful. When I talk about the issue, I talk about suitable finance. Anything less is breaching the obligation of general good conduct. All ASIC is saying is that it's an offence to put someone into an unsuitable loan. That doesn't mean you're discharging your duty by putting them into the loan that's not most suitable,” Denovan said.

The stakes for brokers on the issue are high, Denovan pointed out, and the best way to avoid running into trouble is by holding the suitability of finance to an even higher standard than ASIC.

“The fine is $1.1m for companies and $220,000 for individuals if you put someone into a loan which is unsuitable. Most brokers will want to stay away from that. The best way is by putting someone into a loan that is appropriate,” he stated.

Related stories:

Compliance, ASIC nothing to fear

Brokers urged to draft credit policies


  • by Chris 11/03/2011 11:05:20 AM

    If the legislation was written in black and white ie. open to interpretation it would be a lot better for everyone but as we know, legislation is written by lawyers who include all the grey areas and it passed by pollies (mostly ex lawuyers) - this is a growth industry and always will be - guarantees lawyers and pollies their jobs doesn't it and they say it is to protect the consumer...yeah right.

  • by Patrick 11/03/2011 11:12:42 AM

    Denovan is presuming to predict future interpretation by the Courts, an interesting approach for such an experienced legal practitioner. The first time ASIC "has a go" they will face up against a PI insurer seeking to achieve the narrowest definition of "unsuitable". Mortgage products are vastly similar and suitability is subjective. The issue is, I believe, afforability. You must go beyond the lenders servicing model to ensure the applicant can afford the recommended loan amount.

  • by Ray 11/03/2011 11:14:23 AM

    It is surprising what a lawyer has to say, many loans are "not suitable" because the "suitable Loans" and "best for the customer" the Lender says no - So the choice then is a "not suitable loan" or "no loan" - what is best for the client. Do I ask the lawyer in the ivory tower who lunches with the Bankers in the Ivory tower that say no to "suitable loans" to decide?