A report on the mortgage broking industry, prepared by the Consumer Credit Legal Centre NSW (Inc) (CCLC) and released today by the Australian Securities and Investments Commission (ASIC), has found that while the consumer use of brokers has expanded greatly, there are still few barriers to entry in the industry such as clear minimum competency or training standards.
‘Up to one in two home loans are now sourced through brokers, who can provide a valuable service to consumers faced with an ever-increasing choice of credit options. People should be able to approach brokers with confidence, in full knowledge of the costs involved and with appropriate avenues to redress if something goes wrong’, Mr Kell said.
‘The CCLC report presents evidence that standards need to improve in the mortgage broking sector in order to reduce the risks to consumers. It is pleasing to see that there is wide acceptance in the industry that this is the case’, ASIC Executive Director of Consumer Protection, Mr Peter Kell said.
The report analyses the structure of the industry, identifies a range of problems experienced by consumers, and examines the way in which the industry is regulated in Australia and internationally. It also includes a number of case studies, as well as the results of surveys of consumer caseworkers and brokers.
The CCLC report has found that while consumers are increasingly using brokers, consumers who use the mortgage broking industry can face problems that include:
poor advice, with the increased costs of the inappropriate loans that might result;
inadequate disclosure of fees and commissions by some brokers;
inconsistent documentation from brokers;
uncertainty about the nature and price of the service;
in a small number of cases, fraudulent activity such as manipulating loan applications.
‘'There is also a need for clarity as to whether brokers are acting for consumers or are really agents for lenders’, Mr Kell said.
‘The CCLC report has identified significant issues about the structure and practices of the industry, and raised possible options for addressing these issues’, Mr Kell said.
‘ASIC will provide copies of the report to state governments across Australia, as they are primarily responsible for detailed regulation of the credit marketplace. We will provide copies to the Federal Government as well as key industry players, such as the Mortgage Industry Association and the Finance Brokers Association, and consumer organisations.
‘While ASIC does not have full responsibility for the mortgage broker market, the report has greatly assisted in identifying the types of problems that ASIC can address with its consumer protection powers, including examples of misleading conduct’, Mr Kell said.
‘We are currently investigating a number of matters with a view towards possible enforcement action, and some of these were identified in the process of the report’s development’, Mr Kell said.
‘We are also pleased that in response to the gap identified in the CCLC report regarding consumer complaint schemes, the Mortgage Industry Association of Australasia (MIAA) has announced that it will seek formal ASIC approval for its external dispute resolution scheme, the Mortgage Industry Ombudsman Scheme (MIOS). While the MIOS scheme does not cover the whole industry, ASIC is committed to ensuring that the scheme meets proper standards for those it does cover’, Mr Kell said.
Additionally, in response to the report findings, ASIC will be increasing its information to consumers about the best ways to choose and deal with brokers. From today, a new guide to ‘Using a Mortgage Broker’, is available on ASIC’s consumer website at www.fido.asic.gov.au.
‘ASIC is also in the process of developing an online ‘mortgage calculator’ to help consumers understand the costs of home loans’, Mr Kell said.
Note: Detailed consumer protection regulation in the credit marketplace is provided under the state-based Uniform Consumer Credit Code (UCCC). At the Federal level ASIC has powers to take action in relation to misleading and deceptive practices and unconscionable conduct. The provision of credit is not covered by the Financial Services licensing laws that ASIC administers.