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Best guess not good enough when verifying expenses, says lawyer

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Australian Broker | 27 Nov 2015, 08:00 AM Agree 0
ASIC is unlikely to make brokers obtain bank statements and credit card statements from consumers in order to verify living expenses but doing nothing to increase verification standards is not an option
  • Broker | 27 Nov 2015, 09:17 AM Agree 0
    So should I now ask for 1.3.6 months or 1, 2 or 3 years of savings and credit card statements?

    Will it soon become 5% genuine savings with perhaps a 5 year history for >80% loans!?

    According the Australian Broker Online survey 85% of Brokers say that ASIC don't understand the mortgage broking industry, ASIC, very easy to see why we think this!
  • What The | 27 Nov 2015, 09:21 AM Agree 0
    We should be able to live with the prospect client for a week, then we would have a better overall picture.
  • Elisa | 27 Nov 2015, 09:23 AM Agree 0
    Just a slight clarification, most lenders no longer use the Henderson Poverty Index, Mr Denovan.

    They use the HEM scales (slightly more discerning) and then you tend to look for expenses above and beyond.

    We already collect the last credit card statement as it is an indicator of fiscal management and I would imagine a lot of other brokers do the same.
  • Regional Broker | 27 Nov 2015, 09:26 AM Agree 0
    This is better commentary as always from this person, and while it is not clear yet about what a brokers should be doing if a "best practice" if model comes out of this it will be great.

    Thanks again to Jon Denavon, a great supporter of our industry and the MFAA.
  • Marty | 27 Nov 2015, 09:55 AM Agree 0
    Thanks Jon. Very enlightening.

    I do a sniff test as what else can you really do. E.g. a married couple with 2 kids and household income $200K pa + will not be living off the base poverty amount of say $2800 a month right?

    I just ask and if I get a figure that fails my sniff test I inflate it to something more believable. Suncorp asking for 3 months on all credit cards like you say is a mine field. I don't want to go down that rabbit hole so they are off panel for now.
  • CJ | 27 Nov 2015, 09:58 AM Agree 0
    Jump on a lender's website, download a budget calculator, break those details down into an excel spread-sheet & email it to the customer to fill in. Not that hard, and no need for ASIC/APRA to get all Gestapo again as per normal.
  • QEDRisk | 27 Nov 2015, 10:17 AM Agree 0
    Well said, John and the MFAA Compliance Forum is looking forward to seeing what LIXI can manage to get some consensus on.

    Interesting though, the mention of LIXI, as yet another ASIC manager spoke at a LIXI conference yesterday and reiterated the line about bank and credit card statements. I think they need to get their lines straight in there.
  • DC | 27 Nov 2015, 11:00 AM Agree 0
    I think the recent focus on what records must be obtained is beginning to overshadow the purpose of an assessment of unsuitability.

    Brokers and lenders have to determine a consumer's capacity to meet their obligations under a credit contract. Whether someone has capacity to service their credit commitments is a conclusion based on an assessment of income minus expenses. If I don’t make any inquiry then it’s not an “assessment” of unsuitability. It is a guess.

    Just as a lender won't rely on a consumer to tell them how much they earn ("trust me, I earn $800,000 per annum can I please have my loan"), they can’t rely on a consumer to tell them how much they spend or what all of their other commitments are either. Credit providers insist on proof of income as part of an application because that is what is important to them. They want to get paid. They need to accept there’s another side to the ledger and just embrace it. We can verify income off a bank statement. Switch from payslips to bank statements and you have the one record that verifies both income and expenses. We’re not collecting them to see how much a person spends on internet or cat food each week. We are getting them to make sure that our reliance on what a consumer tells us and our conclusions about the fact they earn more than they spend and have capacity to service credit are not misplaced or based on an obvious lie. It takes only one or two minutes to look over a bank statement to know whether there are anomalies you need to ask more questions about (including credit cards and other undisclosed debts).

    I don’t agree with all of the requirements and unnecessary complexity of the legislation but simply getting bank statements and giving them a couple of minutes’ consideration is a minor issue. Once it is universally adopted, consumers won’t have a choice and the requirement will be as much a part of obtaining credit as the requirement to produce identification.
  • Maria Rigoni | 27 Nov 2015, 11:24 AM Agree 0
    Applying for a loan should not be an audit of someone's personal affairs.

    In my experience most responsible borrowers don't need a lie detector test as part of the process of applying for an affordable loan.

    They might not have and in depth living expense figure but they all know what an affordable repayment is.

    "Jon Denovan, a partner at Gadens – who was also involved in the drafting of the NCCP"

    Gadens being involved in the discussions of protecting consumers is a conflict of interest as they have long established paid relationships with many banks.

    There is too much emphasis on "living expenses"... and recent lender inquiries I see are not reasonable in any way. They are interrogation and an invasion of privacy.
  • Don | 27 Nov 2015, 12:24 PM Agree 0
    Since when is ASIC monitoring the banks? This is the joke of the year.
  • Dave Robinson | 27 Nov 2015, 01:00 PM Agree 0
    You can ask your clients all the questions in the world but the big question is do they know the answer! It now appears that we will have to organise the clients budget first before we can do anything. Fun and games. Lets see how lenders implement this and watch to see if ASIC follows them up as well. The bottom line is we can't save everyone and people need to take responsibility for themselves, the decisions they make and where they spend their money.
  • Jeff Sunbury | 27 Nov 2015, 01:05 PM Agree 0
    This is an interesting topic and it amazes me as to the limited way that a solution is being looked at, all the focus is placed on getting more information from the clients. Information that can be increased or decreased by the clients as they wish, the information collect today will be different tomorrow all the questions in the world will not change that.

    Has anyone thought about looking at this issue from the other side of the coin we know the average living expenses of consumers we know the constant liabilities and income of clients so we know what surplus income is left for clients to spend on living expenses.

    Clients have to be responsible for their own spending we are dealing with adults not children so respect the clients rights to freewill and making their own decisions, all that needs to be done is highlight to the clients the amount that is remaining from their income for living expenses and clearly explain that if they go over that they could be putting themselves into possible hardship.

    Incorporate that into the application form so the clients acknowledge it and understand the figure of living expenses.
  • more more more..... | 30 Nov 2015, 08:59 AM Agree 0
    I estimate by from 2005 to 2020 a home loan will be 50% longer in time to do from start to finish and attract a remuneration % less than what was being received 15 years prior.
  • MM | 02 Dec 2015, 08:10 AM Agree 0
    Obtaining credit by deception or omission is fraud, i.e. it is illegal. When consumers start getting charged and fined for this behaviour, instead of compensated and forgiven interest and fees to go away because the responsible lending guidelines are weighted against the industry, and the precedent has more or less been set, then maybe we can bring some onus back on the applicant - "if you deceive the industry about your income and / or your expenses you open yourself up to criminal charges and prosecution" should be the acknowledgement consumers have to sign on financial statements of position.
  • BB | 14 Dec 2015, 05:24 PM Agree 0
    I agree with the first comment made by MM, however would also like to add that if a Mortgage Manager (Non-Bank Lender) itself has falsified the information within the loan application form (without the knowledge of the borrower) then the Mortgage Manager should go to jail - and the subsequent Trustee should be barred from pursuing the borrower and should pursue the Mortgage Manager for the losses to the Trust.

    Like MM says - A fraud is a fraud.

    I always find comments made by Mr Denovan about Consumers to be quite disparaging. (“For heaven’s sake, consumers lie"). SOME Consumers lie - just as SOME brokers, SOME Mortgage Managers, SOME Bank Managers, SOME Servicers, SOME Lawyers lie.

    From my experience as a Consumer Advocate, the majority of falsities I have seen on Loan Application Forms are included by an industry 'professional' after the borrower has signed it, and without the borrowers knowledge.

    Regulation of the Industry has been needed for many years. I personally don't think Mr Denovan (who seems to hate borrowers) is the right person to be suggesting changes to CONSUMER CREDIT PROTECTION legislation and regulation.

    Gadens gets a lot of business for its legal practice by taking possession action against consumers in Australian Courts. It may appear to be stacking the deck somewhat.
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