ASIC on triple review rampage

by Miklos Bolza13 Sep 2017
The Australian Securities & Investments Commission (ASIC) has revealed details of an ongoing review into interest only lending by brokers and lenders, as well as separate investigations into loan fraud and reverse mortgages.

Information on these matters was covered by ASIC senior executive leader of deposit takers, credit & insurers Michael Saadat at the Credit & Investments Ombudsman’s (CIO’s) Dispute Resolution Conference 2017 in Sydney yesterday (12 September).

Interest only under investigation

Saadat said that ASIC was currently undertaking a “targeted review” of both brokers and lenders to identify firms providing high numbers of interest only loans.

The investigation comes on the heels of results found within ASIC’s Review of Interest-only Home Loans: Mortgage Brokers’ Inquiries into Consumers’ Requirements and Objectives released last September, which highlighted best practices as well as compliance risks for brokers.

“In particular, record keeping continues to be an area of improvement,” Saadat said. “What we are told and what we know is that brokers do make enquiries about a consumer’s requirements and objectives but the outcome of those enquiries isn’t always well documented on the file.”

If there is a dispute, he pointed out that it will be the loan file and records that will be crucial for determining the final outcome.

Within the current investigation, brokers or lenders providing high numbers of interest only loans without sufficient record keeping will be dealt with through “swift enforcement action,” he said.

“Our enforcement toolkit involves a range of sanctions starting with infringement notices under the NCCP Act. These amount to just under $50,000 for each infringement. ASIC can issue infringement notices off its own back. Where they are not paid, we will pursue the matter in court where we reserve the right to seek full civil penalties which amount to $1.7m per breach.”

However, he highlighted that the review is not looking at historical conduct and will instead focus on conduct that is occurring right now. 

At present, ASIC has already obtained data from 16 lenders on the level of interest-only loans being written.

“The specific lenders and brokers that will be the focus of our file reviews will be notified shortly. We’re looking at the data and identifying those lenders and brokers who might be outliers. Once we identify those outliers, we will write to obtain individual loan files to see whether those files have good records of requirements and objectives.”

Scoping out loan fraud

The regulator is also “scoping a project” in relation to various reports of loan application fraud, Saadat said.

“ASIC regularly receives reports of alleged loan fraud from various persons including individual consumers, consumer advocates, other regulatory agencies, credit licensees and industry associations.”

“In many cases where ASIC is alerted to alleged loan fraud involving finance brokers or staff employed by lenders, these matters have been brought to ASIC’s attention by a licensee or an industry association which has already suspended or terminated the individual’s employment, lender accreditation or aggregation agreement.”

The proposed project will give ASIC a better understanding of the type and level of fraud in the industry as well as potential practices which can be used to prevent, detect and respond to these actions.

Reviewing reverse mortgages

Finally, ASIC is conducting a review into the reverse mortgages space as part of a coordinated approach to investigate financial products and services that support Australia’s aging population, Saadat said, called the Older Australians Working Group.

It had been almost a decade since ASIC last reported on reverse mortgage lending and around five years since special protections were introduced in the National Credit Act for mortgage broking and lending, he added.

“The aim of this review is to deepen ASIC’s understanding of lending practices, measure the effectiveness of and compliance with the special reverse mortgage protections, and to get a better understanding of when and why consumers use reverse mortgages.”

The regulator has already reached out to lenders, independent stakeholders and consumer research firms to help with the review, Saadat said. A public report is expected to be released in the first quarter of 2018.

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