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MFAA Prosper : Mortgage and Finance Brief 13
48 Mortgage & Finance brief the National Consumer Credit Protection Act 2009 (Cth) (“the NCCP Act”) imposes responsible lending obligations on persons who engage in a credit activity that is wholly or predominately for personal, domestic or household use. Whether or not a person engages in a credit activity will depend both on the activity itself and whether it relates to a credit contract, a consumer lease, a mortgage or a guarantee that is regulated by the NCCP Act. According to the Explanatory Memorandum to the NCCP Act, the responsible lending provisions intend to: • introduce standards of conduct to encourage prudent lending and leasing; and • curtail undesirable market practices, particularly where intermediaries are involved in lending. Put simply, the objective of the NCCP Act is to ensure that credit licensees do not assist with or provide a credit contract or consumer lease that is unsuitable for the consumer. Meeting responsible lending obligations will require a lender or mortgage broker to take three steps: • make reasonable inquiries about the consumer’s requirements and objectives and their financial situation; • take reasonable steps to verify the consumer’s financial situation; and • make an assessment about whether the credit contract is ‘not unsuitable’ for the consumer (based on the inquiries and information obtained in the first two steps and any other relevant information that they may have about the consumer). A credit contract or consumer lease will be regarded as ‘unsuitable’ for a consumer if: • it does not meet the consumer’s requirements and objectives; or • the consumer is unlikely to be able to meet their financial obligations under the credit contract or consumer lease or can only do so with substantial hardship. The minimum requirement for satisfying reasonable inquiries about a consumer’s requirements and objectives is to ‘understand the purpose for which the credit is sought and determine if the type, length, rate, terms, special conditions, charges and other aspects of the proposed contract meet this purpose’. ASIC considers the obligation to make reasonable inquiries and take reasonable steps to verify information to be ‘scaleable’ that is, the level of appropriate inquiries and verification depends on the particular circumstances. What are ‘reasonable inquiries’ or ‘reasonable verification’ will also depend on the type of credit business the credit licensee provides in relation to the consumer. For example, it may not be reasonable to expect a mortgage broker to obtain a copy of the consumer’s credit report. More extensive inquiries will be necessary: • if the credit contract is complex or not easily understood (eg reverse mortgages); • the consumer has limited capacity to understand the credit contract or has conflicting objectives; • where the potential negative impact of an unsuitable credit contract in the consumer is likely to be relatively serious; or • where the consumer is refinancing, particularly if the consumer is having difficulties meeting repayments, or is in arrears, under their existing credit contract. Although an application for credit may satisfy a lender’s own lending policies, this does not necessarily mean that the lender has satisfied its responsible lending obligations. The lender or mortgage broker should consider each consumer’s application separately and independently. It follows that a lender or mortgage broker may not be able to maintain that they complied with their responsible lending obligations by merely following a checklist or complying with internal lending guidelines. It is no longer possible to have a ‘self certified’ loan where the consumer does not provide the lender with any financial information. So for example, a lender will not meet its responsible lending obligations if it does no more than obtain a declaration from the consumer that the consumer believes they can af ford the loan repayments or that the loan is suitable. A mortgage broker will need to take into account all of the costs of refinancing a loan to determine the consumer’s ability to meet the obligations under a refinancing loan over the term of the credit contract. If none of the credit contracts available through the lender or the mortgage broker meet the requirements and objectives of the consumer, then the lender must not enter into a credit contract with the consumer and the mortgage broker must not suggest a credit contract to the consumer or assist the consumer to apply for any of the credit contracts. If a lender chooses to rely on information provided, or verification undertaken, by a mortgage broker or other third party, it does so at its own risk because the lender is subject to an independent and separate statutory responsible lending obligation. ••• the objective of the nccp act is to ensure that credit licensees do not assist with or provide a credit contract or consumer lease that is unsuitable for the consumer. knowledge centre Consumers may complain to the Credit Ombudsman Service Limited (COSL) that a broker assisted them into an unsuitable credit contract, or that a lender entered into an unsuitable credit contract with them. It’s crucial for brokers to understand how COSL will deal with a complaint from a consumer who feels they were provided with an unsuitable credit product. COSL’s role in NCCP ILLuSTRATIONTHINkSTOCk
Mortgage and Finance Brief 12
Mortgage and Finance Brief 14