A professional indemnity (PI) specialist has expressed grave concern over new requirements for brokers to confirm that there are no signs of financial abuse when they assist clients in securing a loan.
The action has been taken by the banks in response to the Australian Banking Association’s updated code of practice requiring a higher standard for dealing with vulnerable customers. However, Darren Loades, the FBAA’s dedicated PI insurance specialist for Queensland and the Northern Territory, has questioned the sudden announcement, the lack of clarity as to what the agreement entails, and the days-long timeframe before the 1 July implementation.
“Do you think that’s by accident? I sure don’t,” said Loades.
“The main point is that it’s been rushed through, no one has actually seen the details, and it could have very far-reaching and onerous implications for brokers. Do not sign anything for the moment.”
Loades highlighted the serious liability concerns of signing an agreement that could likely take brokers out of their current coverage and leave them “entirely exposed.”
“Professional indemnity policies only respond to claims made under common law. Signing one of these declarations could incur contractual liabilities, over and above the liabilities a broker would owe at common law,” he explained.
“The standard PI policy out there on the market will not pick up any liabilities owed under contract. Brokers could potentially be left exposed and not insured at all.”
Last week, FBAA managing director Peter White expressed concern that “PI insurance could increase tenfold to cover a declaration like this.”
“To try and ram this through with little notice is not only ridiculous and ill-conceived, but creates massive risks for brokers with almost no benefit to borrowers,” he added.
As White expressed last week, Loades finds it suspect that the agreements the banks are asking brokers to sign have yet to be made accessible.
He continued, “But knowing the banking industry, the documents are going to be pretty far-reaching with some nasty little clauses in there along the lines of, ‘If you drop the ball in this area, you agree to indemnify the bank against any losses.’ Otherwise, why would they be going to this trouble?
“This seems to be a push from the banks to transfer their liability onto the broker, which isn’t all that fair or realistic.”
While Loades does acknowledge that brokers are the ones to have face-to-face interaction with the borrower, he has serious doubts that a set of written guidelines provided by the bank could translate to brokers being able to identify signs of abuse in real life stations.
“That’s a whole different ballgame. Brokers aren’t qualified or licenced to provide advice in this area of financial abuse,” he said.
“What happens if the broker happens to innocently miss a situation where there is financial abuse? The bank is going to rely on this document to say, ‘Well, you signed off. You’re the one who is liable.’”