Amid the ongoing review by the Australian Securities & Investments Commission (ASIC) into broker remuneration, reports from last month’s 2016 Annual Credit Law Conference suggest that commissions are unlikely to be banned.
Speaking at Friday’s Pre-Christmas Credit Update at Gadens, Ruth Neal, partner at Gadens, gave more information about the progress of this review.
“ASIC said that their new report, when it was prepared, would be released not only to government but also to industry – probably by the end of the year.
“The general feeling is that there’s unlikely to be a recommendation to ban commissions given that the current market seems to be operating well and providing a service that seems to be significantly valued by consumers.”
Best practice for interest-only loans
Neal also discussed Report 493: Review of interest-only home loans
by ASIC which looks at the practices of 11 large mortgage brokers with a focus on enquiries and records of consumer requirements and objectives.
The report details a number of steps that mortgage brokers can take to improve current best practices, including:
- Ensuring the broker understands the consumer’s underlying objectives for requesting specific loan products or features
- Recording concise summaries of the consumer’s requirements and objectives and the reason why a particular product or feature or lender was chosen
- Providing a statement that summarises the broker’s understanding of the consumer’s requirements and objectives and asking the consumer to confirm those matters before obtaining the loan
- If the potential benefits of a loan feature might require the consumer to undertake specific behaviour, ensuring consumers are aware of that and are aware of the potential costs if they don’t undertake that action
“The report also found that lenders have responded to ASIC’s findings … with reductions in the percentage of new interest-only home loans approved and also reductions on the amount that individuals were borrowing in interest-only home loans.”
However, despite the fact that ASIC’s concerns on interest-only loans and responsible lending are being acted on by industry players, Neal suggested the regulator feels that “there’s definitely still room for improvement in that area”.
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