'Not unsuitable' not enough: Gadens

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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.

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  • M. Rollins 'MPIA' (Mortgage Planning Institute of on 11/03/2011 6:29:52 PM

    Am I reading this correctly? “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.

    I would never normally speak like this in a forum, but OMG! Is that how Gadens view the operators in this industry - as dodgy, self-serving grubby throw-backs to the life insurance industry (now known as Financial Planners)

    I had to read that a few times to check if I understood that correctly.

    So those engaged in crafting and advising on this new legislation (GADENS) think that badly of those of us writing loans.

    Well here's my professional view also.

    Bank products are designed, constructed and sold into the mortgage market with one parties interest in mind, the Banks! ... and I think a modern economy (our government)in 2011 permitting a bank to operate and indebt the population base of the country it operates in, is 'unsuitable' to our National objectives.

    Most brokers I know provide a very real point-of-difference to their customers.... brokers actually show people how to erode a mortgage to the benefit of the customer, whereas a bank will only engage in growing a customers debt levels.... now that's 'unsuitable' in my mind.

    Why doesn't Gadens speak to the un-stuitable nature of banks selling multiple debt-based-products into a clients house and indebting them beyond their capacity.... the banks call this program 'wallet share'

    When one examines the NCCP legislation, it essentially seems to me to be a response designed for the sub-prime mortgage market, in another country (hint Hint USA)... 4 years after the burst bubble.

    So I put it to Gadens.

    1. Define 'unsuitable'... in the Australian (We never had sub-prime) context.

    Pull the other one...

  • MJR on 11/03/2011 5:55:51 PM

    Fact: The Banks worked with the regulators to design the NCCP.

    FACT: According to the Banks, they are the only ones who can provide 'suitable mortgages'

    FACT: ASIC/NCCP/Banks would like all of you to handle your loan enquiries in the following manner.

    (The phone rings at ABC home loans) 'ring Ring' Hi - yes I can help.... what's that? you want a 'suitable' loan - well according to ASIC/NCCP Regs and the banking-lobby-groups based in Canberra, I'll have to refer you to one of the big 4 banks directly, as the NCCP/ASIC/COSL and my insurer ostensibly agree that I could never in my wildest dreams provide you with a suitable loan...... thanks for coming and have a nice day.

    The End ....

  • Maria Rigoni on 11/03/2011 11:50:40 AM

    "Not Unsuitable" is a double negative and is a sensible approach taken by the legislators. Unless a credit provider or credit assistance provider has access to every loan in the market place then they are unable to know which is "the best" "the cheapest" "most suitable". ASIC only requires finance brokers to comply with the NCCP and ensure the loan is not unsuitable for the consumer taking into account their ability to repay the loan without substantial financial hardship and their requirements and objectives.

  • sylviamacfarlaine on 11/03/2011 11:35:48 AM

    Would love to see a bank send off a potential customer if their products were deemed inappropriate for the customer. Yeah right!! NCCP is supposed to apply to everyone, banks and brokers. We do the same thing, qualify and apply policy.Banks should also go "a step beyong" as well.Legislation such a wonderful interpretive piece of paper you can wipe your rear with. Start putting things in B&W,make the law clear. We are all on equal footing now as far as I am concerned and if the NCCP was prejudicioulsy prepared as an attack tool on brokers, I have to wonder who is beng paid a handsome hourly rate and in cohorts with the Govt!!! PS Patrick, unless you are prepared to analyse a clients entire spending habits down to minute detail, and which banks would do that, you could never really go beyond the banks servicing model to determine with complete accuracy whether a client can afford a loan. Thats why we have the henderson poverty index. We will never be able to control our clients future spending including future debt. Best we can do is obtain as much informatio as we can and ensure that all debt is disclosed and being serviced satisfactorily.

  • sylvia on 11/03/2011 11:18:12 AM

    Agree Chris.Would love to see any bank send a potential client to a competitor if their products are not appropriate for the customer. Yeah right!!Cut the crap Denovan. Bank or Broker we all do the same thing, qualify the same and apply policy the same.If ASIC wants to fry anyone using NCCP then it should be same rules for Banks as well as Brokers. Or do the the banks pay you a better hourly rate!!!

  • derekmiles on 11/03/2011 11:17:02 AM

    Ok, the challenge for the lawyers and COSL is "what is an unsuitable loan"? If all the majors products are virtually the same, and the rates are virtually the same, how can ASIC or borrowers say that one lenders loans are not unsuitable and another is suitable? This whole situation is becoming rediculous. It is like selling holdens. Is a holden dealer going to check with every customer that walks in looking at their holdens, now fill in a questionaire to make sure that our holden more suitable than ford down the road? Of course not. We are not investing clients money, we are merely providing a loan that the client wishes to borrow in order to purchase their house. Provided we are not trying to sell them a loan with interest rates adversly higher than those offered by the majors, then how on earth can they say we may not be providing the client with a suitable loan?

    It is about time that politicians, regulators and lawyers got a reality on life.

  • Ray on 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?

  • Patrick on 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.

  • Chris on 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.

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