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Commonwealth announces changes to implementation timeframe for National Credit Reform

As you will be aware, the responsibility for all consumer credit regulation is scheduled to be transferred to the Commonwealth Government. The National Consumer Credit Protection Bill 2009 tabled in the Commonwealth Parliament on 25 June 2009 provided for the transfer to commence with registration of existing credit providers and finance brokers by the Australian Securities and Investments Commission (ASIC) on 1 November 2009 to be followed by the National Credit Code commencing on 1 January 2010. However, on 17 September 2009, the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP announced a number of enhancements to the National Consumer Credit Protection legislation, including a change to the commencement date.

The key change is to defer the commencement of the consumer credit reforms to 1 July 2010 to allow the credit industry more time to make the necessary changes to move to the new regime. However, the start date for the new responsible lending obligations on Authorised Deposit-taking Institutions (ADIs) and Registered Financial Corporations (RFCs) will remain 1 January 2011. This follows a recommendation by the Senate Economics Committee in their report on the National Consumer Credit Protection Bill 2009 and related Bills, released on 7 September 2009.

Revised timeframes for implementation of the national consumer credit reforms are as follows:

  • Licensing: commences 1 July 2010
  • New National Credit Code requirements (e.g. application to credit for residential investment properties, amendments to business purpose declarations and default notices, new notices in response to application for hardship variations and postponements): commence 1 July 2010
  • Requirement not to arrange or provide credit that is unsuitable -- non-ADIs and non-RFCs: commences 1 July 2010
  • Other responsible lending obligations (including disclosure requirements, such as upfront disclosure of broker fees and charges) and requirement not to arrange or provide credit that is unsuitable - ADIs and RFCs: commence 1 January 2011.

Arrangements for registration of existing industry participants will need to be modified to take account of the revised commencement date. Details on the timeframe for registration are yet to be announced by the Commonwealth.

State credit and finance broking regulation will remain in place until 30 June 2010. You are reminded that it is unlawful to carry on the business of a finance broker or credit provider without a licence in Western Australia.

If your licence(s) is due to expire prior to 1 July 2010, applications for renewal of the licence must be submitted to the Department of Commerce as usual.

Options regarding fees paid with respect to Western Australian licences are currently being considered. Updates will be published on the Department of Commerce website, when available.

A Guide to the National Consumer Credit Reform Package, together with relevant draft legislation can be found on the Australian Treasury website at www.treasury.gov.au/consumercredit. For information about ASIC or to check for regular updates regarding the national credit reform you may wish to visit ASIC's dedicated credit website at www.asic.gov.au/credit.

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Council of Australian Governments (COAG) changes to finance brokers administration - 08/07/09

The Council of Australian Governments (COAG) has agreed that responsibility for all consumer credit regulation (including licensing or registration of finance brokers) will be transferred to the Commonwealth Government.  It is currently proposed that this transfer will take effect from 1 November 2009. From the date of transition, administration of consumer credit regulation will be undertaken by the Australian Securities and Investments Commission (ASIC).

The National Consumer Credit Protection Bill 2009, which implements the decision by COAG to implement a national regime for consumer credit regulation, was introduced into Parliament on 25 June 2009. A Guide to the National Consumer Credit Reform Package, together with relevant draft legislation can be found on the Australian Treasury website.   

Submission to the Senate Economics Legislation Committee for the Inquiry into the National Consumer Credit Protection Bill 2009 and three related bills closed on 17 July 2009.  More information about the Inquiry and instructions for making a submission can be found on the Senate’s website.

Enquiries about the national credit reform package can be directed to the Australian Treasury on (02) 6263 2046 or through their website. Regular updates regarding the national credit reform can be found at ASIC’s dedicated credit website.

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National Consumer Credit Reform: Public Information Sessions – 16/10/08

Earlier this year, the Council of Australian Governments (COAG) agreed to transfer the regulation of consumer credit from the States and Territories to the Commonwealth. On 2 October, COAG announced a two-phase action plan for this credit reform. Information about the action plan can be found in the information sheet issued by the Australian Treasury.

Treasury will be conducting public information sessions on these national consumer credit reforms. Sessions have already been scheduled in Melbourne on 27 October and Sydney on 30 October, with future sessions likely to be organised in Perth, Brisbane, Adelaide and Hobart by the end of the year. It is anticipated that the Perth session will take place in November.

Treasury has also indicated that it will continue to run information sessions throughout phase one and phase two of the reform process to inform interested parties of key developments in the implementation of these reforms.

To register your interest in attending these sessions, send an email to consumercredit@treasury.gov.au, specifying the city in which you wish to attend a session in the subject line. Further enquiries relating to the reforms can also be directed to this email address.

More information about the national consumer credit reform can be found at www.treasury.gov.au/consumercredit.

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Finance Brokers Proactive Compliance Program – 06/08/08

On 29 June 2007 the Finance Brokers Control (Code of Conduct) Regulations 2007 (“the Code”) was enacted.  Pursuant to section 17(1) of the Finance Brokers Control Act 1975 (“the Act”) and as part of the Finance Brokers proactive compliance program, the department has conducted a number of visits on finance brokers to examine compliance with the Code. 

As a result of the visits conducted the department has identified a range of issues which are outlined below.
 
Disclosure documentation not meeting Code requirements

The Code requires finance brokers to make a variety of written disclosures to their clients.  In particular clause 8.6 requires certain disclosures to be made prior to a broker being appointed to act including informing the borrower about the services available from the broker including the range of lenders from which the broker can obtain a loan and details about the commission (and any other payments) that will be received by the broker.

In relation to the disclosures required by clause 8.6 of the Code the majority of finance brokers visited have prepared and use some form of disclosure documentation.  Most brokers have tailored a pro-forma disclosure document to meet their particular needs. 

However, the visits identified that despite the use of the pro-forma documents there were instances where the disclosure documentation failed to meet the requirements of the Code.  By way of example the following disclosures were found to be missing:

  1. Clause 8.6(a) finance broker’s full name and address. It was found that often where the licensee had employee loan writers, these details were disclosed as opposed to the actual details of the broker;
  2. Clause 8.6(c) the nature and range of services that the finance broker provides; and
  3. Clause 8.6(e) the proposed timeframe required to establish the borrower’s eligibility for a loan.

It is appropriate to remind brokers that it is their responsibility to ensure that they comply with the Code’s disclosure requirements. 

Negotiate appropriate loans

The visits identified certain issues in relation to the appropriateness of loans arranged including:

  1. Business or investment purpose declarations had been completed where it was questionable whether the loan was actually for business purposes;
  2. A large proportion of loans being arranged through the same lender; and
  3. Failure to retain sufficient documentation to assess the borrower’s needs, including documenting the reasons why a particular product and lender was chosen.

Clause 8.4 of the Code requires a finance broker to only negotiate or arrange loans which he or she genuinely and reasonably believes is appropriate for the borrower.  Further, the finance broker must document in writing and demonstrate that reasonable inquiries in relation to the needs, objectives and financial circumstances of the borrower were made.  It is expected that this would include documenting the reasons why a particular product and lender was chosen and ensuring that sufficient evidence is retained in relation to verifying the appropriateness of the loan.

Failure to retain disclosure documentation

Despite the Code having commenced some 12 months ago a small number of visits identified that no disclosure documentation was retained on file.  Finance brokers are reminded that all disclosures, cautions and warnings required by the Code should be evidenced in writing and should be retained on file.

Original disclosure documentation not retained on file

Clause 8.7 requires that the original signed disclosure document prescribed by clause 8.6 is to be retained by the broker and a copy given to the client.  During the visits it was identified that certain brokers had only retained photocopies of the signed disclosure document.

Client cautions required by the Code

The Code requires finance brokers to provide their clients with several written cautions before being appointed to act.  The visits identified that certain brokers failed to provide all of the written cautions prescribed by the Code.  By way of example the following cautions were found to be missing:

  1. Clause 8.4(b) requires a finance broker to caution the client that the proposed loan was based on the lenders canvassed and the information provided by the borrower and that, if the information is incomplete or inaccurate, the borrower should, before entering into the loan arrangements, consider its appropriateness having regard to the borrowers relevant personal circumstances and, if necessary, seek independent financial advice;
  2. Where refinancing a loan will increase the overall financial commitment of a borrower, Clause 8.5(c) requires the finance broker to recommend in writing that a borrower seek independent financial advice before signing the loan contract; and
  3. Clause 5.6(f) requires the finance broker to caution the borrower that the finance broker’s remuneration is limited to a maximum as prescribed by the Maximum Remuneration Schedule.

Summary

During the first year of the Code’s operation the department has provided education and advice through its visits to brokers, and by other means, in relation to the Code’s requirements on the understanding that this has been a transitional phase for brokers to adapt to the new requirements.  The department has also provided a number of warnings in relation to Code compliance issues in this time.  A small number of more serious issues also remain under investigation.

Given the Code has now been in place for over one year it is expected that all finance brokers would have processes and procedures in place to ensure their compliance, and where necessary addressed areas of non-compliance.

The department will continue to visit finance brokers under its proactive compliance program and is taking this opportunity to advise that should issues of non-compliance with the Code be identified, either through these visits or by other means, consideration will be given to commencing compliance action which may include disciplinary proceedings through the State Administrative Tribunal.

If you have any queries please contact the Proactive Compliance Team on 6364 3287.

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New Course for ‘A’ Class Licence Qualification: Diploma of Financial Services (Lending) – 09/06/08

The Finance Brokers Control (General) Regulations 2005 have recently been updated to include the Diploma of Financial Services (Lending) as an alternative qualification for the grant of an ‘A’ class (unrestricted) licence, which allows brokers to negotiate and arrange loans with private lenders.

Therefore, the current minimum education requirement for the grant of an ‘A’ class finance brokers licence is the successful completion of:

  1. Certificate IV in Financial Services (Finance/Mortgage Broking), including relevant supplementary Western Australian material; and
  2. a Diploma of Mortgage Lending or a Diploma of Lending or a Diploma of Financial Services (Lending).

The Diploma of Financial Services (Lending) is currently only offered by Kaplan Professional.

Brokers are reminded that at least two years full time experience in private lending (within the last 5 years) is also a requirement for applying for the unrestricted licence.

Note that applicants for an unrestricted licence may apply for a restricted licence so that they can practice under a restricted licence whilst studying the Diploma course.

For further information, please contact the Licensing Line on (08) 9282 0835 or email.

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Debt collector prosecuted – 22/05/08

Consumer Protection has recently issued the following media statement, reproduced here for the information of licensees:

Former licensed debt collector Paula Davenport of Bunbury has been fined $2000 with costs of approximately $8000 in the Bunbury Magistrates Court.

“This successful prosecution of Ms Davenport was a landmark case for Consumer Protection as it is the first time a debt collector has been found guilty of undue harassment and coercion, since the department took over regulation of debt collectors in 2005,” Consumer Protection Commissioner Anne Driscoll said.

“The penalty and significant court costs should send a clear message to the industry that intrusive and unprofessional conduct will not be tolerated,” she said.

The magistrate rejected Ms Davenport’s account of her dealings with her clients, and found instead that the number of calls and inappropriate comments in connection with attempts to recover debts with respect to goods and services was in breach of the Fair Trading Act.

Consumer Protection’s investigation had indicated that Ms Davenport had used similar practices against a number of people in the South West region.

“Bullying and intimidation is unwarranted and illegal. A debt collector’s duty is to draw the debt to the attention of the debtor and take reasonable steps to recover the debt.

“Harassing and threatening families is not on, and Consumer Protection officers will use all possible means available to ensure that the rights of consumers are protected and offenders are held responsible,” Commissioner Driscoll said.

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Notification of Change to Licence Details - 19/05/08

Licensed finance brokers are reminded of their obligation to inform the Department of Commerce (formerly the Department of Consumer and Employment Protection) of certain changes to their licence particulars within one month of any change occurring. The obligation to advise of a change of particulars arises in a number of circumstances, including the following:

1. Section 34 Finance Brokers Control Act 1975

Section 34(3) states that licensees must comply with the conditions attached to their licence.

It is a condition of some licenses that:

“Within one month of any change being made to the directors, partners, person in bona fide control or other persons concerned in the management or control of the licensee, the person in bona fide control noted on the licence MUST:

  1. Advise the Commissioner of the change occurring;
  2. Provide the Commissioner with current business references, original national police clearances and credit history reports for each of those persons newly appointed to any of these positions.

The person in bona fide control must provide the Commissioner with any further information as may be requested by the Commissioner in relation to changes referred to above.”

2. Regulation 15 Finance Brokers Control (General) Regulations 2005

Regulation 15 requires that licensees must notify Commerce in writing of a change in particulars within one month.

The required particulars set out in Regulation 15 include:

  1. a change in a director of the body corporate that is the licensee;
  2. a change in the partner of a firm that is the licensee;
  3. a change in the person in bona fide control; or
  4. a change in the principal place of business.

Commerce must also be notified of changes to the following:

  1. commencing or ceasing to carry on business, within 14 days (s 36(1));
  2. ceasing to have a registered office, within 14 days (s 36(2));
  3. change of residential address, within 14 days (s 36(3));
  4. location of new branch offices, before business is commenced (s 38(1)); and
  5. a change of business name, within 14 days (s 41(2)).

Commerce may issue infringement notices for each breach of a licence condition or a failure to provide notice of change of particulars. Penalties range from $200 - $400, and are cumulative.

Licensees are reminded to consult the Finance Brokers Control Act or contact the licensing department at Commerce on 9282 0835 or email if clarification is required.

Renewal of finance brokers licences - 12/05/08

The Commissioner for Consumer Protection wishes to remind all licensed finance brokers of the requirements in relation to renewing a finance brokers licence pursuant to the Finance Brokers Control Act 1975 (the Act) and its associated Regulations.

Regulation 11(1) of the Finance Broker Control (General) Regulations 2005 states that:

An application by an individual, firm or body corporate for the renewal of a finance brokers licence is to be made by completing a renewal application in the approved form and sending it, together with —

  1. the documents set out in the approved form as being required by the Commissioner; and
  2. the renewal fee set out in Schedule 1,

to the Commissioner, either by pre paid mail, or by delivering it to the Commissioner’s office.

Therefore, applicants must provide all of the following items in order for the application for renewal to be considered lodged:

  • completed renewal form;
  • the prescribed fee;
  • all supporting documents as set out in the application checklist; and
  • late fee (if applicable).

Section 32 of the Act stipulates that if the application for renewal and payment of the prescribed fee (including any applicable late fee) are not made within 28 days of the expiry date, the licence will expire.

Licensees are advised that unless all the items required for a renewal of a licence pursuant to the Act and Regulations are received with the application, the application for renewal will not be considered lodged. Furthermore, if the application is not complete by the end of the 28 day period stipulated in section 32 of the Act, the licence will automatically expire.

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Dealing with unlicensed credit providers and finance brokers – 01/05/08

As a result of recent proactive compliance visits, it has come to the attention of the Department of Commerce (formerly the Department of Consumer and Employment Protection) that brokers may not be making the appropriate checks to ensure that they are able to negotiate or arrange loans through all members on their panel of lenders.

Where a finance broker holds a restricted licence ('B' or 'C' class), a condition attached to that licence is that they are only able to negotiate or arrange loans through a lender who is either:

  • An Australian Financial Services licensee authorised to operate a managed investment scheme registered under Chapter 5C of the Corporations Act 2001 (Cth);
  • Regulated by the Australian Prudential Regulation Authority;
  • A licensed credit provider under the Credit (Administration) Act 1984;
  • A person exempt from the licensing requirements of s. 6 of the Credit (Administration) Act 1984;
  • Both a 'financial corporation' and a 'registered entity' within the meanings given to those terms in the Financial Sector (Collection of Data) Act 2001 (Cth); or
  • Any other person specifically noted on the licence as an approved lender.

A finance broker who holds a restricted licence and is involved with the negotiation or arrangement of a loan through a lender that does not fall into one of the above categories may be in breach of their licence conditions.

Brokers should also be aware that, in some instances, a lender may require a finance brokers licence. If a lender does not hold a finance brokers licence but should in fact be licensed, the broker who is arranging the loan may be in breach of section 40A of the Finance Brokers Control Act 1975, which prohibits a licensed finance broker from dealing with an unlicensed finance broker.

Penalties for the above breaches could result in:

  • disciplinary action being commenced at the State Administrative Tribunal, which may lead to a reprimand, suspension or cancellation of your licence and/or a fine of up to $10,000; or
  • prosecution, with a maximum penalty of $50,000.

Licensees are reminded to ensure that they comply with both the legislation and the conditions of their licence. Commerce publishes online regular updates of the registers of licensed credit providers and finance brokers.

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Employee or independent contractor? - 02/01/08

It has come to the attention of Consumer Protection that some people working in the finance broking industry may consider themselves to be employees of a licensed finance broker, when in fact they may at law be independent contractors. Independent contractors carrying on the business of a finance broker are required to obtain a finance broking licence in their own right.

Persons carrying on the business of a finance broker without a licence face a penalty of up to $50,000. Likewise, licensed finance brokers who engage unlicensed independent contractors also face penalties of up to $50,000.

Ensuring that all workers negotiating and arranging loans are licensed, whether they appear to be employees or independent contractors, will not only avoid potential fines for unlicensed activity, but will also ensure that the worker is subject to necessary training and education. This will assist their ‘employer’ in complying with their own obligations under the Finance Brokers Code of Conduct to ensure that staff members under their supervision are competent and have up to date qualifications and experience.

The test for whether a person is an employee or an independent contractor takes into account many different factors. For example, even those that have written employment contracts that describe them as ‘employees’ will not necessarily be considered to be employees.

It is therefore necessary to look at all the circumstances of employment in order to determine the status of a worker.

The following are some factors that are taken into account in determining whether a worker is to be classified as an employee or an independent contractor:

  1. Control/supervision
    If a worker has a great degree of autonomy in their role, in carrying out tasks, making decisions or determining their working hours, it is more likely that he or she is an independent contractor.
  2. Source and place of work
    If the worker performs work for more than one finance broking business or is not required to work at particular premises then he or she may be more likely to be considered an independent contractor.
  3.  Working hours
    If the ‘employer’ does not determine the working hours of the worker, or the worker can decide when to take leave, then this suggests that the worker is an  independent contractor.
  4. Payment
    If the worker is paid by commission, as opposed to a wage or salary, then this suggests that he or she is an independent contractor.
  5. Employee entitlements
    If the ‘employer’ does not make superannuation contributions on behalf of the worker, and/or the worker does not have annual leave or sick leave entitlements available, then the worker is more likely to be an independent contractor.
  6. Insurance
    If the worker has the ability to choose his or her own professional indemnity insurance then it is unlikely that the worker is an employee.
  7. Source of business
    A worker is more likely to be an independent contractor if he or she sources work individually, for example through independent advertising, rather than through the ‘employer’s’ finance broking business.
  8. Failure to comply with the rules
    If the business owner or manager does not have the power to terminate the employment of a worker, for example for a failure to comply with the organisations policies or rules, then the worker is more likely to be classified as an independent contractor.
  9. Purchase of equipment
    Employees are generally not responsible for the purchase and maintenance of equipment required to operate the business (e.g. facsimile machine or computer) and therefore if a worker does provide such equipment it is possible that he or she is an independent contractor.
  10. Employment of support staff
    An independent contractor may hire other independent persons in the course of his or her work, such as assistants or secretaries.
  11. Registered business name
    An independent contractor is more likely to operate under his or her own business name, rather than the business name of the ‘employer’s’ finance broking business.

All of the factors identified above should be considered when determining whether a worker is an employee or an independent contractor. It is quite likely a worker will find that some of the factors above are present in his or her case while other factors may point to an alternative conclusion. As such, the list above should not be seen simply as a checklist. It is the totality of the relationship between the worker and the finance broking business that must be considered. If a worker is in doubt, he or she should seek independent professional advice or immediately apply for a finance broking licence.

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Model bill proposed to nationally regulate finance brokers - Call for submissions

At present, Western Australia is the only State which licences finance brokers. In recent times, New South Wales has been drafting a model bill on behalf of all states and territories to provide nationally consistent regulation of finance brokers.

The bill has been drafted with the support of industry and consumer representatives and has now been released for public comment.

Key proposals include:

  • licensing and probity checks for brokers that will screen out applicants with a history of unfair practices;
  • mandatory skills and ongoing professional development to ensure that a quality service is provided;
  • mandatory membership of an ASIC-approved external dispute resolution scheme for affordable access to redress;
  • a requirement that the broker provide specified disclosures about costs and services before negotiating a broking agreement with the client;
  • a requirement that brokers make sufficient enquiries about the consumer’s financial status to ensure they can afford the product recommended;
  • redress for losses when a consumer enters into an inappropriate credit product on the broker’s recommendation.

Comment on this bill is sought from all interested parties. The bill is available from the NSW Office of Fair Trading. Submissions close 15 February 2008.

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New finance brokers code of conduct to commence 29 June 2007

The Minister for Consumer Protection has announced that a revised Finance Brokers Code of Conduct is anticipated to commence on 29 June 2007. The delay in commencement of the regulation has been provided to allow industry with sufficient time to make any modifications to their existing processes/procedures to ensure compliance.

The existing Code of Conduct will remain in force until then.

The revised Code of Conduct was developed by the former Finance Brokers Board and the Department of Commerce (formerly the Department of Consumer and Employment Protection) following extensive industry and public consultation.

The revised Code introduces significant new safeguards for borrowers seeking loans through a finance broker.

It is understood that the Mortgage and Finance Association of Australia and the Finance Brokers Association of Australia may be providing informational seminars to members concerning the changes to the Code prior to its commencement.

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Supervision of C class licensees - 25/06/07

As part of the Finance Brokers Proactive Compliance program, the Department has conducted a number of compliance visits of Finance Brokers responsible for supervising C class licensees to ensure that there was an adequate level of supervision in place.

As a result of the visits conducted, and in light of the requirements of clause 5.15 of the Finance Brokers Control (Code of Conduct) Regulations 2007 ("the Code of Conduct") due to commence on 29 June 2007, it is appropriate to provide some guidance notes to supervisors of C class licensees.

These notes are not intended to provide a comprehensive framework on what a licensee should put in place to satisfy its obligations. This will depend on the nature, size and complexity of your business. It is the responsibility of supervisors to demonstrate that they have sufficient measures in place to satisfy their supervision and mentorship obligations. Failure to comply with the Code of Conduct or related legislation may result in disciplinary proceedings through the State Administrative Tribunal.

1. Training and ongoing development of C class licensees

Clause 5.15 of the Code of Conduct provides that it is the finance broker's responsibility to take reasonable steps to ensure that C class licensees:

  • have up to date qualifications or experience relevant to their duties in the finance broker's business; and
  • keep up to date with relevant current laws and practices in those aspects of the finance broking industry in which they participate.

While C class licensees have obtained the Certificate IV in financial services this would not satisfy all their training needs upon commencement in the industry. Supervisors should ensure that there are sufficient training measures in place to meet these needs. Additionally, to stay abreast of industry practices and legislative changes C class licensees should also be provided with ongoing training and development.

Induction programs, mentored/joint client interviews, routine training schedules (e.g. fortnightly training sessions), lender accreditations and training from relevant industry bodies are examples of appropriate training and ongoing development initiatives that would assist in complying with clause 5.15.

It is expected that training would cover information about the relevant provisions of the Code of Conduct, including those relating to disclosure, appropriate loan selection and refinancing. In providing this training C class licensees should be given information about the standards and processes required and issues to consider to achieve compliance with these provisions.

It is expected that most C class licensees would be provided with an induction program/training, undergo lender accreditations and attend mentored/joint client interviews for a period after their commencement. Other training measures used and the way they are implemented will depend on your business. For example, a supervisor with a small business responsible for only 1 C class licensee may not have a routine training schedule in place but may rely on ad-hoc training and one to one feedback after assessment of each loan proposal. In these circumstances compliance controls will be higher in lieu of training. Conversely a supervisor with a large business responsible for more C class licensees may be expected to have a structured training program in place.

2. Compliance controls in relation to the supervision of C class licensees

Clause 5.15 of the Code of Conduct provides that it is the finance broker's responsibility to take reasonable steps to ensure that C class licensees comply with:

  • any conditions on their licence;
  • the provisions of the Act and regulations;
  • the Maximum Remuneration Schedule; and
  • the requirements of the Code of Conduct.

Appropriate controls that would achieve this include documented procedure manuals, loan application/file audits, obtaining and assessing feedback from customers and lenders, and effective dispute resolution services.

Further controls identified but requiring comment included:

  • Contracts of engagement: A common term of engagement contracts/franchise agreements, as the case may be, is to the effect that the broker is bound by relevant laws etc and may face dismissal if found to be in breach of this.

    Supervisors should not rely solely on the contract of engagement as a means of ensuring that C class licensees abide by the conditions imposed on their licence and relevant laws. Rather, this should be used in conjunction with other controls such as loan application audits, assessment of feedback from customers and lenders and performance management measures.
  • Delegation of supervision: Where supervision and mentorship responsibilities are delegated, supervisors should ensure that delegates hold the appropriate qualifications and experience. Further, it is a reasonable expectation that larger businesses will have a dedicated officer to assist with the training, development and supervision of C class licensees. Despite the delegation of responsibilities it is the supervisor that is ultimately responsible for the supervision of the C class licensee.

The controls mentioned here are not exhaustive but provide an indication of suitable measures to ensure legislative compliance. At a minimum, supervisors should undertake loan application/file audits, assess feedback from customers/lenders, have appropriate contracts of engagement and have a dispute resolution service. Levels of supervision would generally be intensive during the early stages, though certain controls may reduce over time when the supervisor becomes satisfied that the C class licensee has sufficient skills and knowledge and is compliant with the legislation.

For example, take a supervisor with 1 C class licensee. This supervisor has a number of controls in place including loan application audits. The supervisor audits the first 10 loans submitted by the C class licensee. Upon being satisfied with these 10 loans, and becoming confident that the C class licensee has sufficient skills and knowledge and is compliant with the legislation, the supervisor reduces this control and undertakes ad-hoc random audits. However, the supervisor still appropriately relies on other compliance controls during this later period, such as monitoring feedback from customers and lenders, to ensure that there is a sufficient level of supervision in place.

It is expected that where a certain compliance control is reduced over time, supervisors will maintain a balance with other controls so that as a whole there are appropriate measures in place for effective supervision.

3. Performance Management of C class licensees

Methods used to monitor, assess and manage the performance of C class licensees included setting monetary targets for loan approvals, loan application/file audits, written performance plans and assessing feedback from customers and lenders.

Performance management is a key tool in the supervision and mentoring process and will assist supervisors to assess the performance of C class licensees in fulfilment of their obligations under clause 5.15 of the Code of Conduct.

The visits conducted identified that the majority of supervisors focus on monetary performance measures. While these are important from a business perspective they are not central to the supervision provisions of the legislation which are about ensuring appropriate services to clients. To ensure that a supervisor's legislative obligations are fulfilled the performance management methods used should include an assessment of compliance and quality control measures.

4. General Supervision Issues

  • During the course of a visit it was noted that individuals intending to obtain a C class licence may be participating in finance broking activities, including client interviews and loan application information gathering, prior to their licence being granted. It is an offence for persons to hold themselves out as a finance broker or carry on the business of finance broking without a valid licence. It is also an offence to conduct business with unlicensed finance brokers or assist persons who are unlicensed to carry on a business of finance broking. Penalties of up to $50,000 apply to breaches of these legislative provisions.
  • Where there are a large number of C class licensees, supervisors should ensure they have appropriate measures in place and the capacity to undertake their supervision and mentoring responsibilities. This may include having a dedicated training and development officer within the business. More formal systems, standards and auditing processes are expected in these circumstances.
  • In cases where supervision is provided to a C class licensee located in a remote or country location, or the supervisor is located interstate, supervisors should ensure they have adequate measures in place to undertake their supervision and mentoring responsibilities.
  • In some instances C class licensees employ staff involved in finance broking activities (e.g. loan writers). In these cases it is the responsibility of supervisors to ensure that employees of C class licensees receive appropriate levels of supervision and operate in accordance with the legislation.
  • It is recommended that evidence of supervision be retained such as records substantiating the loan application/file audits conducted (e.g. register of loans examined, signature/initials on documents reviewed) and formal training attendance records. This will assist you in the event there is an allegation of inadequate supervision.

If you require further information in relation to the supervision of C class licensees please contact the Proactive Compliance Team on (08) 9282 0548.

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Update on proactive compliance visits – 30/01/07

Consumer Protection Officers are currently conducting proactive compliance visits to ensure that C-class licensees are being properly supervised.  While some licensees have queried the minimum requirements for such supervision, it would be inappropriate for the Department to prescribe a specific compliance framework for all finance brokers as adequate supervision will necessarily depend on the nature, size and complexity of each specific business.  To date, the majority of compliance visits have found no significant concerns with the supervision arrangements in place.  It is intended that further information regarding Consumer Protection’s findings will be forwarded to licensees in the future.

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False and misleading representations – 30/01/07

The Department of Consumer and Employment Protection has received a number of complaints over the last year alleging that licensed finance brokers or their employees have made false or misleading representations regarding the status of finance approval.

In one instance it was alleged that the employee of a licensed finance broker made a false representation that the borrowers had finance approval when in fact they did not.  Of concern to the Department is the potential for borrowers to suffer financial loss if offers to purchase a property are made unconditional, but finance cannot be obtained by the proposed settlement date.  Potential losses include liability for penalty interest where finance is obtained after the proposed settlement date and loss of deposit where finance cannot be obtained and the property purchase cannot proceed. Borrowers may also be unable to occupy a new property until settlement, or, where the property can be occupied, be required to pay rent.

Licensed brokers would be aware that the Finance Brokers Code of Conduct provides that licensees must not mislead or deceive any party to a loan transaction or make any false or misleading representations. The Code of Conduct also provides that licensees must properly manage and supervise the business to ensure their employees comply with relevant legislation.

Both licensed brokers and their employees should also be aware that false or misleading representations by a broker or their employee can also result in the Department prosecuting the employee and/or the licence holder for making false or misleading representations under the Fair Trading Act 1987.  Offences against the Fair Trading Act carry penalties up to $20,000 for individuals and $100,000 for companies.

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Finance brokers annual audit – 24/01/07

The Finance Brokers Control Act 1975 ("the Act") imposes a duty on finance brokers, who receive or hold trust monies, to have their trust account audited within three months after the end of each calendar year. Regulation 5 of the Finance Brokers Control (General) Regulations 2005 provides an exemption to the trust account and audit provisions for finance brokers who do not receive or hold trust moneys.

Should you have received or held trust monies between 1 January 2006 and 31 December 2006 you are required to lodge, no later than 31 March 2007, an audit report in respect of the trust account for the period 1 January 2006 to 31 December 2006. The report is to be prepared in accordance with the Guidelines for Auditors of Finance Brokers [PDF] issued by the Commissioner for Consumer Protection.

If you have any queries please contact the Principal Proactive Compliance Team on (08) 6364 3287.

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Change to standard conditions on licenses – 09/01/07

A review of the standard conditions placed on finance broker licenses, undertaken in consultation with the Mortgage Industry Association of Australia ("MIAA") and the Finance Brokers Association of Australia ("FBAA"), has recently been finalised by the Commissioner for Consumer Protection.

As a result, minor amendments have been made to a few of the standard conditions and others have been removed altogether where they duplicated provisions of the Act.

The new conditions will be updated on existing licenses at the time of their next renewal.

However, if you feel that the new conditions will be of benefit to you now (e.g. you deal with non-bank commercial lenders who are not regulated by the Credit (Administration) Act 1984) you are invited to apply by email to have your licence updated with the new conditions and reissued immediately.

See full list of new standard conditions.

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Advertising guidelines - finance broker licence number – 08/01/07

The October 2005 amendments to the Finance Brokers Control Act 1975 ('the Act') introduced a requirement under section 45(2) which states that:

"A duly authorised advertisement in respect of the business of a licensee shall contain (as a minimum) the licence number of the licensee, and such other details (if any) as are prescribed."

In response to industry requests for some clarification of what might constitute an 'advertisement', the Commissioner of Consumer Protection has developed guidelines in consultation with the Mortgage Industry Association of Australia ("MIAA") and Finance Brokers Association of Australia ("FBAA").

These have now been finalised and approved by the Commissioner for Consumer Protection and a copy is attached for your information.

Licensees are reminded that failure to comply with s45(2) is a breach of the Act and is also a prescribed offence under the Finance Brokers Control (General) Regulations 2005 ("the Regulations") which may result in a $400 infringement notice.

If you have any queries, please call the Licensing Line on (08) 9282 0835 or email.

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Exemptions to licensing under the act and the new d-class licence – 08/01/07

Amendments to the Finance Brokers Control (General) Regulations have been gazetted which create a new class of licence (D class).

These amendments allow partners of firms and directors of bodies corporate  to become individually licensed (thereby enabling the firm or body corporate to become licensed) without having direct experience in negotiating or arranging loans and having to complete the Cert IV.

The grant of a D-class licence is subject to the firm or body corporate having a licensed person in bona fide control of the finance broking business who hold a current A- or B-class licence (i.e. has successfully completed the Certificate IV and who also has at least two years full-time relevant experience in the preceding five years.

Link to D Class licence application form.

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