Banks get a taste of BID

by Madison Utley20 Aug 2020

Earlier this week, ASIC published its expectations for how lenders are to handle the expiry of customers’ loan repayment deferrals over the coming months, revealing overlap with the approach the regulator took in the recent regulatory guide provided to mortgage brokers.

“ASIC’s guidance to the lenders regarding mortgage deferrals is quite interesting; it sounds very similar to the guidance they’ve been giving to the mortgage broker industry – more specifically around our upcoming best interests duty (BID) obligations,” said Connective executive director Mark Haron.

“What ASIC is saying here is the banks must be really clear in explaining to their customers the consequences of putting their home loans on pause.”

Clear and direct communication is crucial not only in ensuring customer comprehension, but because ASIC has left ample room for the banks to decide the best course of action for each customer as they see fit rather than recommending a standardised approach.

“The guidance talks about having flexible arrangements and looking at individual situations,” said Haron.

“In some cases, customers might be able to afford some repayments, in which case, they should be encouraged to pay as much as they can to control the blowing out of their mortgage costs in the long run. Others will be put on interest only. For some, banks could lengthen the term of the loan, such that when the customer can resume repayments, they’ll be more affordable and realistically be able to continue making them.”

Given the vulnerable nature of the situation and the extensive range of possible courses of action, ASIC has emphasised the need for lenders to keep detailed records of their conversations with customers and subsequent recommendations made. 

“ASIC has been really clear lenders will need to keep adequate notes. And adequate notes, as our group legal counsel at Connective has pointed out many times in many webinars, is really also what brokers will use to cover themselves to ensure they’re compliant down the track,” said Haron.  

“If you’ve kept adequate notes and you’ve disclosed appropriately, you’ll be in a better position should someone make a complaint against you.”

As the party responsible for identifying and executing the decision deemed most appropriate, banks are insisting on speaking to borrowers directly regarding next steps rather than allowing brokers to step in, according to Haron.

However, despite lenders being tasked with prioritising communication, the Connective director expects many customers will remain confused and unaware of the consequences of lengthening their loans through repayment pauses.

“What brokers can be doing is talking to these customers, understanding where they’re at and helping them stay informed as things move forward,” said Haron.

“For each lender, take the relevant customers through what the banks’ requirements are, the next steps, which websites and phone numbers they need on hand. You want to help make sure when they have a conversation with their lender, they’re in a good position.”

However, Haron emphasised the need for brokers to remain vigilant about their record-keeping as well.

“There is no doubt some of those customers are going to come back from the banks to their broker to discuss next steps in further detail, and it’s really quite important the broker is careful in how they position any advice or recommendations around whether to extend the deferral or not, and rather focus on the larger financial impact for the customer,” he said.

“It is crucial they’re keeping adequate notes of the conversations they’re having with the customers.”