Loans - Should Brokers be Forced to Check Your Ability to Pay?

A proposed new law could see Australian brokers legally obliged to only offer consumers credit products they can afford. This development has come about as a result of a growing number of credit horror stories giving Australia’s credit broking industry a bad name.

Currently, regulation of brokers in Australia is fragmented with no uniform system of regulation. The draft National Finance Broking Bill seeks to license all brokers and purge the industry of its bad apples.

Linda Burney, New South Wales’ Fair Trading Minister, said the Office of Fair Trading and Consumer Credit Legal Centre have seen consumers who have been exploited by huge fees and charges and saddled with loans they cannot afford to repay.

The plans for brokers, if passed, could see them having to run credit checks on consumers and require them to check documents, such as pay slips, to ensure customers are able to afford any credit offered.

The Fair Trading Minister added: “In short, this legislation will make brokers accountable – they will be required to assess a consumer’s capacity to repay and also to have a reasonable basis for their recommendations. If they are found to have misled their clients or to have engaged in dishonest or unprofessional conduct, then action can be taken.”

The scheme has met with a mixed response from brokers, who are largely in favour of the industry being regulated. But some have concerns about the industry being legally bound to confirm the ability of consumers to repay any loans offered.

Some finance brokers have hit out at the proposals because they feel they will see them duplicating the work of lenders. A spokesman for Australia’s Finance Brokers Association said: “It would appear the broker will need to join a credit bureau and do all credit checks before lodging the application. Do we assume the lender will duplicate the process prior to approval or just accept the information given to them and then blame the broker if something goes wrong?”

The majority of mortgage brokers, represented by the Mortgage and Finance Association of Australia, favour uniform regulation of brokers and are supportive of the bill. But the 12,000 strong MFAA ‘vehemently opposes’ the ‘capacity to repay’ element of the bill. It also believes the bill to go beyond consumer protection and have labelled it a form of ‘social re-engineering’ of the mortgage and finance industry.

It considers aspects of the bill to be unfair as they contend the ability to repay test will not apply to loans officers at lenders. Loans officers are responsible for 60 per cent of Australia’s mortgage introducing, compared to brokers who are responsible for 40%.

The mortgage brokers’ trade body would prefer to see a law licensing brokers and a code of conduct created. It claims this would protect consumers and allow the industry to keep up to speed with market development.

Predatory lending sees consumers deliberately ripped off with excessive fees and signed up to loans they cannot afford. Some brokers believe this type of lending would be better tackled by banning the practice in law rather than make brokers run a credit check on consumers.