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ASIC releases report into mortgage brokers
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A report on the mortgage broking industry, prepared by the Consumer Credit Legal Centre NSW (Inc) (CCLC) and released 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.

'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.

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.

Download a copy of the Report (PDF file, 871KB)

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PRIVACY AND FINANCIAL INFORMATION
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The Privacy Commissioner has released 2 case notes that summarise his investigations into two privacy complaints involving people's financial information.

In the recently released case note 3, where it was alleged that a staff member of the financial institution had accessed personal information about the complainant's investment account and disclosed it to the staff member's family, the Commissioner found no breach of the Act.

The Commissioner arrived at his decision because the alleged privacy breach occurred before the commencement of the Privacy Amendment (Private Sector) Act 2000, which began on 21 December 2001. Had the situation occurred after 21 December 2001 it is likely that the Commissioner would have found that the company had breached the Act.

Even though no breach of the Act was found, the organisation undertook to change its practices by establishing an audit trail on the mainframe where personal information is stored so that staff access to customers' personal information would be recorded.

In case note 4, it was alleged that the credit worthiness information of an individual was improperly disclosed to her former partner by a retail store that both people had credit accounts with. The Commissioner found that credit information about a person had been inappropriately disclosed to another. The matter was resolved to the satisfaction of the two parties with the retailer apologising to their customer and paying them $750 in compensation.

"It's a requirement of the Act to ensure that only the appropriate people in an organisation have access to personal information and that personal information is only disclosed to those who have a right to see it." Mr Crompton said.

Inappropriate disclosure of information is the number one issue the Office of the Federal Privacy Commissioner receives calls and complaints about. Since 21 December 2001 the Office has received more that 4000 calls and 235 complaints about this problem.

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TAX TREATMENT OF INSTRUMENTS ISSUED BY FINANCIAL INSTITUTIONS
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Minister for Revenue and Assistant Treasurer Senator Helen Coonan, has announced that tax regulations would be used to clarify whether certain financial instruments are treated as debt or equity for taxation purposes.

Senator Coonan said the regulations will provide guidance and certainty to both the issuers and holders on the tax treatment of these instruments.

The regulations will ensure that:

certain Upper Tier 2 capital instruments issued by Authorised Deposit-Taking Institutions (ADIs) that are banks are treated as debt for taxation purposes. This means returns on these instruments paid on or after 1 July 2001 will qualify as tax deductions to the bank;

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certain Lower Tier 2 capital instruments issued by ADIs that are credit unions and building societies are treated as equity for taxation purposes. This means that returns paid after this announcement will qualify as frankable dividends.

Senator Coonan said "These regulations will remove existing uncertainty concerning which side of the debt/equity borderline certain financial instruments fall on for tax purposes.

"Removing this uncertainty will enable banks, credit unions and building societies to now proceed with confidence in raising additional capital on competitive terms."

More

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Mortgage default management
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Australia's financial regulator has warned mortgage lenders to improve their insurance claims procedures in preparation for a potential downturn in the housing market.

A recent review by the Australian Prudential Regulation Authority has found that up to one half of all insurance claims lodged by lenders could have been adjusted or refused by providers had they taken a harder line on policy terms and conditions.

"Lenders' mortgage insurance works well to cover the occasional bad loan but may not work well to cover the greatly increased claims volume attached to a property downturn," said APRA executive general manager Charles Littrell, at a recent Securities Institute seminar .

APRA said it would implement a "health check" of home lending practices by Australian banks, building societies and credit unions between May and June this year.

"APRA will be making it clear that insured loans with less than robust foreclosure and claims systems do not qualify for the 50 per cent concessional risk-weighting treatment for capital adequacy purposes but are instead weighted at 100 per cent," Mr Littrell said.

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Consumer Credit Penalties for ANZ
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The Supreme Court of Qld has ordered the ANZ Bank to pay $686,000 as a civil penalty and more than $40,000 in compensation to consumers for breaching laws covering personal loan contracts in the late 1980s through to 1996.

The breaches in more than 47,000 personal loan contracts in Queensland included a failure to disclose insurance commissions, other fees and charges and the correct amount financed.

The order is one of the largest penalties ever imposed on a credit provider in Queensland.

"The ANZ took advantage of thousands of consumers by failing to comply with the laws in place to protect borrowers," Fair Trading Commissioner Matt Miller said.

"However, of greater concern is that when the errors were identified the bank did not treat them seriously and followed a policy of containment,” Mr Miller said.

“When concerns were raised by regulators and the Consumer Credit Legal Service (Vic) the bank admitted its errors and cooperated with the Office of Fair Trading.”

The monies awarded will be directed to education, compliance and counselling activities relating to consumer credit through the Consumer Credit Fund.

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Queensland Stamp Duties
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Calculators for Queensland transfer duty, mortgage duty and lease duty are now available on-line

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