Finance and Mortgage Broker Regulation

The Ministerial Council on Consumer Affairs has released a discussion paper detailing options for a national regulatory scheme for finance and mortgage brokers.

The paper discusses entry requirements to the industry as well as consumer protection and redress mechanisms.

Mortgage brokers will have to obtain a licence, detail the reasons for their recommendations to consumers, and disclose all commissions.

The Ministerial Council invites comments or submissions on the issues raised and the proposals to address those issues no later than 15 February 2005.

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Queensland Credit Business Duty change

Under Chapter 6 of the Duties Act 2001 Queensland, credit business duty applies to a loan provided one of two nexus requirements is satisfied:

- the loan is to a Queensland resident, or
- any negotiations for the loan take place in Queensland.

An administrative arrangement has been approved to remove imposition of duty if the loan is not to a Queensland resident but negotiations for the loan take place in Queensland. For loans, this means that credit business duty will only be imposed when the loan is to a Queensland resident.

Whether any negotiations for the loan take place in Queensland is no longer relevant, even if the lender is Queensland based, if the borrower is not resident in Queensland and the loan funds are not spent in Queensland [s294(3) Duties Act].

Practice Direction 71.1 set outs the terms and conditions of the administrative arrangement.

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Consumer Credit Code Hardship Threshold Increased



Consumer Credit Amendment Regulation (No.1) 2004 inserts two new sections

(22A and 23A) in the Consumer Credit Regulation 1995 which provide that,

respectively, for the purposes of s.66(3) of the Consumer Credit Code, ss 66 to 69,

and, for the purposes of section 86(2) of the Code, part 5, division 3 of the Code,

do not apply to a credit contract under, or in respect of, which the maximum amount

of credit that is or may be provided is more than an amount equal to 110% of the

amount of the average loan size for new dwellings in New South Wales.

The effect of the Regulation is that the maximum loan amounts for which borrowers can seek

hardship relief or apply for a postponement has increased from $125,000 to $340,670

(the current amount which reflects the average NSW housing loan where prices are

highest). The amount will be updated monthly after the release of Australian Bureau

of Statistics figures.

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Debt collection regulation

The Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC) have issued a brochure outlining their roles in regulating debt collection activities.

Both ASIC and the ACCC oversee laws which protect consumers from inappropriate behaviour by a debt collector.

'Debt collectors must not use physical force, undue harassment or coercion when collecting debts. They must also ensure that their conduct does not mislead or deceive consumers or take unconscionable advantage of them', ASIC's Executive Director Consumer Protection and International Relations, Mr Greg Tanzer, said.

The new brochure sets out the role of each agency in debt collection:

• ASIC deals with debt collection complaints relating to a financial service. This includes debts on credit card accounts, personal or home loans, finance provided by a finance company for items such as a car or household goods, as well as fees for the provision of financial advice;
• the ACCC deals with debt collection complaints relating to goods and non-financial services. This includes debts for telephone services or other utilities, and for the services of tradespeople and professionals, where immediate payment is not required.

The above arrangements also apply when a debt is 'assigned' or sold to a third party, such as a debt buy-out company.

In addition to ASIC and the ACCC, complaints regarding debt collection can also be lodged with state or territory government consumer affairs or fair trading agencies, or an industry dispute resolution scheme (for example, the Banking and Financial Services Ombudsman, if the debt collector is a member of the scheme).

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Privacy Research and Finance Industry

Federal Privacy Commissioner, Karen Curtis, has released the findings of research into the privacy attitudes of Australians. The focus of the research was to examine people's attitudes to privacy in a number of areas including: health, the Internet, dealing with businesses and government organisations, and privacy in the workplace.

"The research results show that respondents rate health service providers as the most trustworthy organisations, followed by financial organisations and government organisations and they considered the least trustworthy organisations to be internet sales companies, and mail order companies," Ms Curtis said.

90-95% of respondents to the research consider the following hypothetical situations to be an invasion of privacy:
a business that you don't know gets hold of your personal information (94% consider this a privacy invasion);
a business monitors your activities on the internet, recording information on the sites you visit without your knowledge (93% consider this a privacy invasion);
you supply your information to a business for a specific purpose and the business uses it for another purpose (93% consider this a privacy invasion);
a business asks you for personal information that doesn't seem relevant to the purpose of the transaction (94% consider this a privacy invasion).

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Banking and Financial Services Complaints

The Banking and Financial Services Ombudsman has released his office's 2003-2004 Annual Report.

For the second consecutive year there has been a decline in the number of new cases (15.5 per cent) to 5,859 and an increase in the number of cases resolved prior to an investigation (90.1 per cent from 87.0 per cent in 2003).

As a consequence of the early resolution of many cases, disputes that do require investigation are now more complex.

As at 30 June 2004 the Scheme had 30 bank members and 17 non-bank members. To reflect increases in housing prices, borrowing levels and the size of investments, the Board has approved an increase in the jurisdictional limit from $150,000 to $250,000, to take effect in December 2004.

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Daylight saving

Daylight saving has already begun in Tasmania for the summer of 2004/2005.

Daylight saving in ACT, New South Wales, Victoria and South Australia will commence on Sunday 31 October 2004. It will conclude in all states on Sunday 27 March 2005.

Queensland, Western Australia and the Northern Territory do not have daylight saving.

From 31 October, when it is 9am in ACT, NSW, Victoria and Tasmania it will be
8.30am in SA
8am in Qld
6am in WA
7.30am in NT

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ASIC targets unlicensed financial services operators

ASIC has announced that it is into the second stage of its compliance campaign to remove unlicensed operators from the financial services industry.

Over the next six months it will be doing compliance checks on anyone that appears to be conducting a financial services business without an Australian financial services (AFS) licence. The penalty for doing business without a licence is a $22,000 fine or two years jail or both.

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Soft Dollar Disclosure

Mortgage brokers who are members of MIAA will soon be obliged to disclose to borrowers non-cash benefits valued at more than $300.

The new code requires disclosure of benefits of more than $300 such as:

• sponsorship of seminars, conferences and functions;
• gifts;
• payment of office rent;
• accommodation and entertainment;
• travel;
• cash payments and/or goods;
• computer hardware and software costs; and
• competitions in which a broker or loan writer might be eligible to win a prize, subject to achieving volume-related targets.

Unlike financial planners, mortgage brokers will not be banned from accepting such "soft dollar" payments. Mortgage brokers who arrange credit only are not covered by the stricter Financial Services Reform fee disclosure obligations.

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Mortgage broker advertising guidelines

Mortgage Industry Association of Australia (MIAA) has issued advertising guidelines for its members.

ASIC has welcomed the guidelines. Mr Greg Tanzer, ASIC's Executive Director of Consumer Protection and International Relations said "The guidelines give a useful explanation of the key legal requirements for advertising and address a number of issues of concern to ASIC."

MIAA has reminded its members that they should seek their own legal advice on their own specific circumstances or advertising.

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Low-doc loans reviewed by APRA

The Australian Prudential Regulation Authority (APRA) has released revised criteria for authorised deposit?taking institutions (ADIs) to qualify for the concessional risk?weighting of residential mortgage lending for capital adequacy purposes.

The revised criteria ensure that the 50 per cent risk-weight applies only to residential mortgage lending by ADIs which have adequate procedures to gauge the ability of the borrower to meet repayment obligations and to assess independently critical information in respect of the borrower. This new element is targeted at low-doc loans.

To be eligible for the concessional risk?weighting, ADIs must also implement:

policies for determining the marketability of residential properties offered as security;

documented procedures regarding the valuation of properties; and

processes for outsourcing any part of the credit assessment process to third parties.

The revised prudential standard covering changes to the risk-weighting of residential mortgage lending comes into effect from 1 October 2004, and will need to be reflected in reporting to APRA for the quarter ending on 31 December 2004.

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Infochoice Loan Calculators Misleading

ASIC has acted to close down loan calculators on more than 100 websites of Australian financial institutions, including banks, credit unions, other lenders and finance brokers. The calculators suggested that using a line of credit will result in the consumer paying off their home loan more quickly.

'Most lines of credit charge higher interest rates than standard home loans, so when you stop to think about it, it was extraordinary to suggest that paying higher interest could pay off a loan sooner', said Mr Greg Tanzer, ASIC's Executive Director of Consumer Protection and International Relations.The loan calculators produced a graph, comparing the time taken to pay off a standard loan with the time taken using a line of credit.

However, the way the calculator was designed meant that:

extra repayments were credited to the line of credit but not to the standard loan:

the line of credit was at the same interest rate as the home loan;

and

these assumptions were not made clear to the consumer, so that the calculator showed that the line of credit was paid off more quickly than the home loan but it was not clearly stated that this was due to higher repayments by the borrower.

'The calculator software was produced by infochoice.com.au in line with industry specifications, and was used by over 100 lenders and broker groups.''infochoice.com.au acted quickly to take down the calculators from over 100 websites once ASIC raised these concerns with it,' Mr Tanzer said. 'ASIC acknowledges the company took a co-operative and responsible approach that will benefit consumers.'

More

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New Online Features

You can now instruct us online for upstampings, discharges, valuations, company searches and title searches.

If you have any questions about our services or suggestions for further site improvements, contact your local Network Law member.

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Site Upgrade Information

This site will not be available from 4pm to 6pm AEST on Wednesday 15 September while we implement an upgrade.

This upgrade includes:

total site cosmetic redesign (including news stories on the home page)

addition of forms (upstamping, discharge, valuation, company search, title search requests)

improvements to new mortgage instruction form (allowing insertion of amount of insurance required, purpose of loan, proposed settlement date, phone numbers of borrowers as requested by clients)

improvements to discharges view matter page and initial auto-emails for discharges and upstamps.

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Outsourcing in financial services

ASIC has released two international consultation papers on outsourcing [from The International Organization of Securities Commissions' Standing Committee 3 on Market Intermediaries (IOSCO SC3) and the Basel Committee Joint Forum] and is encouraging interested persons to submit comments on either or both of these consultation reports.

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Internet Banking warning

APRA has reminded authorised deposit-taking institutions of the threats from "phishing" and key-logger and Trojan attacks.

APRA has strongly recommended ADI's which offer internet banking take precautions such as:
• introduce procedures to ensure that under no circumstances would a customer be
asked to reveal their PIN/password;
• implement strong authentication and control mechanisms to provide reliable
safeguards against identity theft;
• actively seek out fake websites or other scams which target their institution;
• ensure appropriate limits are in place for online transactions; and
• ensure fully documented incident response procedures are in place which are
communicated to all relevant staff members.

APRA said ADI's should also encourage their customers to protect themselves.

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Outsourcing shared services

ACCC has announced it will not intervene in the proposed joint venture of the voucher processing facilities of Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corporation.

According to ACCC, "the transaction will create a joint venture company, upon the completion of a competitive tender process, with the function of acting as a service entity. As a result, the parties to the arrangement will collectively outsource their voucher processing requirements, but will not provide these facilities downstream as a single entity. The banks will continue to compete for the provision of voucher processing services to downstream customers."

Such a transaction also must comply with APRA's Prudential Standard APS 231 on outsourcing.

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APRA proposes new capital risk weighting

APRA has released a discussion paper in which it proposes to strengthen the LMI prudential capital and reporting framework and the eligibility requirements for ADIs claiming the 50 per cent concessional risk weight on certain loans that are mortgage-insured.

Currently, under prudential standard APS 112 – Capital Adequacy: Credit Risk and associated guidance notes, ADIs qualify for a 50 per cent concessional risk weight on loans above 80 per cent LVR that are fully secured by registered mortgage over a residential property, and 100 per cent mortgage-insured through an ‘acceptable’ LMI. Without mortgage insurance, high-LVR loans attract a 100 per cent risk weight.

For non-standard loans, proposed amendments will require mortgage insurance on loans with an LVR in excess of 60 per cent for ADIs to claim the capital concession.

The proposal will amend the definition of ‘acceptable’ mortgage insurance to require insurance to be provided by an LMI that:
• is authorised by APRA; or
• is domiciled in a country APRA considers to have comparable prudential regulation.

Where the insurer or any reinsurer has contractual recourse to the ADI, or a member of the ADI’s consolidated group (excluding the captive LMI), the ADI will not be eligible for capital concessions.

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ASIC investigates mortgage broker advertising

ASIC has issued a warning to the mortgage broking industry regarding misleading advertising.

'Don't claim that you are independent or impartial if that's not true', Mr Greg Tanzer, ASIC's Executive Director of Consumer Protection and International said.

'In every case that we have examined to date, we found such claims were misleading. For example, you cannot be totally impartial if you only deal with a limited panel of lenders who are paying you commission', Mr Tanzer said.

Mr Tanzer issued the warning after ASIC accepted an enforceable undertaking from Structured Financial Solutions Pty Ltd not to use the words 'impartial' or 'independent' in any future advertising or promotional material.

ASIC considered the claims misleading and deceptive because Structured Financial Solutions advises consumers only about the lenders appointed to its panel. All of the lenders on the panel pay commission to Structured Financial Solutions.

ASIC has previously taken action against Fintrack and Mortgage Choice.

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FINANCIAL SECTOR ADVISORY COUNCIL REVIEW REPORT RELEASED

The Treasurer has released the Review of the Outcomes of the Financial System Inquiry 1997 by the Financial Sector Advisory Council (FSAC).

FSAC conducted a detailed evaluation of the financial sector reforms flowing from the Financial System Inquiry (which were announced on 2 September 1997) five years after their commencement. FSAC has now completed the review as it is just over five years since those reforms began, including the establishment of the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission.

Overall, FSAC is confident that Australia’s financial system and its regulation are on a firm footing and compare favourably with the rest of the world. As such, the Council notes that the Australian economy, and its financial system, has proven resilient in the face of considerable world economic and political turmoil.

The Review also identifies certain areas where the Council considers that regulatory challenges remain and the Treasurer will take into account its views when considering future options.

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e-commerce and the Uniform Consumer Credit Code

The draft Consumer Credit (Queensland) Amendment Bill and the draft Consumer Credit Amendment Regulation (No.1) 2004 have been released for comment. If passed they will implement the e-commerce recommendations of the Post Implementation Review of the Consumer Credit Code.

According to the Uniform Consumer Credit Code Management Committee, the proposed amendments clarify the extent to which the Code , the uniform electronic transactions legislation and the general law authorise the use of electronic communications for transactions governed by the Code.

The proposed amendments do not introduce new e-commerce concepts. They ensure that consumer protection is not compromised because a credit contract was formed electronically or because the debtor elects to receive notices electronically.

Read the Explanatory Paper

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Queensland stamp duty change
 
From 1 August, credit card duty in Queensland will be abolished.

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New Network Law ACT Representative

We are pleased to announce that Bradley Allen Lawyers has been appointed as our ACT representative to ensure that all our clients can receive uniform national service at a local level.

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Government fees and duty changes

With the new financial year commencing, the duty and registration regimes in different states is changing significantly.

THe following is a summary only. For any specific queries, please contact your local Network Law member firm.

Duty

It is important to note that almost all the duty changes relate to conditional exemptions, rather than wholesale changes to rates. Therefore, Lenders should not change the disclosure of Mortgage Duty or Credit Business Duty as a result of the changes.

The exception is Victoria. Following the abolition of Mortgage Duty in Victoria, Lenders should no longer disclose Mortgage Duty for Victoria.

Registration Fees

In relation to changes of registration fees, Lenders should start disclosing the higher fees immediately.

Queensland

Queensland is introducing duty changes in two tranches.

For purchase contracts and mortgages signed on or after 1 May 2004, where the purchase price is less than $500,000.00, first home buyers will pay no Mortgage Duty or Transfer Duty on the first $250,000. Transfer Duty will apply at a lower rate up to $500,000.00.

For purchase contracts signed on or after 1 August 2004, the concessional rate of Transfer Duty that currently applies to all home purchases (purchase of a Principal Place of Residence) for the first $250,000.00 will be extended to the first $300,000.00.

More information on Queensland's changes

Registration fees at the Queensland Titles Office will also increase (in line with inflation). The standard dealing will now cost $105.60. For Transfers and more complicated dealings, refer to the Titles Office's new online calculator

New South Wales

While Mortgage Duty remains untouched in New South Wales, there are new concessions for First Home Buyers. The "First Home Plus" scheme has been extended so that first home purchases of less than $500,000.00 will be duty free, with discounts for purchases up to $600,000.00. Lower threshholds apply for vacant blocks.

The new concessions for First Home Buyers are offset by a new "exit tax" for property investors. Where the value of an investment property has increased by more than 12%, the vendor will pay "Vendor Duty" of up to 2.25% of the purchase price. Although the vendor is responsible for paying the duty, all purchasers and Lenders must ensure that each and every Contract and Transfer are noted for Vendor Duty (even if the notation states "Not liable to Vendor Duty").

Registration fees at the New South Wales LPI will increase markedly in New South Wales on 1 July 2004. A standard dealing will now incur a $75.00 fee.

Further details of the duty changes

Victoria

The biggest change relates to Victoria, where Mortgage Duty has been abolished entirely. Any mortgage that is signed and settled on or after 1 July 2004 will not be subject to Mortgage Duty (on a $300,000.00 loan, that will save the borrower $1200.00).

Any mortgage that is signed before 1 July 2004, but settles on or after 1 July 2004, will incur nominal duty of $4.00.

Victoria has also started paying First Home Owners an additional grant known as the "First Home Bonus" of $5,000.00. The First Home Bonus is available to people over 18 years of age who enter into a contract to purchase or build a home, or build a home as an owner-builder, between 1 May 2004 and 30 June 2005 and where the consideration paid under the contract is no more than $500,000. With the First Home Bonus and First Home Owner's Grant (FHOG) combined, many Victorian first home buyers will be entitled to $12,000.00 in government assistance.

The Victorian State Revenue Office will also be implementing a number of other initiatives announced in the May budget , such as increasing conveyance duty compliance measures and introducing exemptions for concession card holders.

Western Australia

The general rate of conveyance duty (for all purchasers in WA) will be cut by 5%, while the threshold for the concessional rate has been increased to $200,000 (up from $135,000), with further discounts for First Home Buyers up to $300,000. For more information

South Australia

South Australians eligible for the First Home Owner's Grant (FHOG) will no longer pay any Mortgage Duty, while first home purchasers can now claim $250,000.00 for a partial duty concession (up from $130,000.00). more information.

South Australians will pay a higher common lodgement fee ($98.00) at the Titles Office, with a more complicated arrangement for new (higher) transfer fees. Details

Australian Capital Territory

The Territory's income based exemption will be widened, extending transfer duty exemptions to higher income thresholds. Also, the common lodgement fee will increase to $82.00 (up from $80.00).

Further information on the ACT Duty changes. The Titles Office website.

Tasmania

First Home purchasers in Tasmania will benefit from a new duty concession of up to $4 000 on purchases of less than $350 000. Further details

Future Changes: Multijurisdiction mortgages

Queensland Parliament is currently considering a Bill to amend the Duties Act 2001 which has an impact on multijurisdictional mortgages that have a Queensland and Victorian component.

As soon as this Act commences, Queensland will exclude Victoria from the calculation of the dutiable proportion. In practice this means that Queensland will collect duty as though 100% of the property is located in Queensland (even if much of it is, in reality, located in Victoria).

There are no parliamentary sittings until 13 July 2004, and given that the Estimates Hearings run from 13 -23 July, it's not clear when the Bill will be proclaimed or commence. So in the meantime, the Queensland side of Victoria/Qld Multijurisdictional mortgages will function as usual.

Lenders and Mortgage Managers should continue to disclose duty in Loan Contracts as though 100% of the property is located in Queensland (ie they should give no discount for multijurisdictional mortgages). This is standard practice in all states for most Lenders anyway, and will protect you against Credit Code breaches once the legislation commences.

While all states currently exclude the ACT and Northern Territory from multijurisdictional calculations, at this stage Qld is the only state that is extending the exclusion to Victoria. Further details .

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Tax Office begins low doc loan audits

The Tax Office has begun auditing a number of people where income disclosed to lenders of low doc loans is substantially higher than that disclosed in their tax returns.

Tax Commissioner Michael Carmody said that in the cases under examination it is difficult to see how the loans could be serviced by the incomes disclosed in tax returns. In some cases the annual loan repayments themselves exceed reported taxable incomes. In other cases, people with substantial loans had failed to lodge tax returns.

"These are potentially serious breaches of the law. People deliberately understating their income face penalties of up to 75 per cent plus interest," Mr Carmody said.

Low doc loans do not require paperwork to prove income. The lending institution usually charges a higher rate of interest on these loans.

The Tax Office has been matching details from a selected range of low doc loans with the borrowers' tax files.

More

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New Privacy Case Notes for Credit Providers

The Privacy Commissioner has released notes on 3 cases relating to credit providers.

In O v Credit Provider [2004] PrivCmrA 5 the Commissioner declined to investigate because the respondent had not had an adequate opportunity to deal with the complaint.

The complainant had devoted significant time and resources towards developing a business venture. A finance institution refused his application to finance the venture due to an overdue account (default) listed on his consumer credit file.

The complainant had no knowledge of the default and immediately notified the credit provider of the listing. The credit provider removed the default listing three weeks later.

Several months after the credit provider removed the payment default the complainant wrote to the Commissioner alleging that the credit provider had improperly listed the default and that he had suffered significant financial loss as a result and was seeking compensation on this basis. According to the complainant, he had paid the debt owed to the credit provider and was at no time sixty days in arrears. He alleged that the credit provider experienced a computer error and consequently listed the default.

Although the complainant had contacted the respondent and asked that it remove the default, the documents the complainant provided suggested that the respondent was not aware that the complainant was seeking compensation.

In R v Credit Provider [2004] PrivCmrA 7 the Commissioner declined to investigate because the complaint was made almost four years after the event and it was likely that key people would no longer be able to recollect the events that had occurred.

The complainant alleged that a credit provider listed an overdue account (a default) on her consumer credit file despite the fact that it had said that it would cease collection activity. The complainant claimed that the improperly listed default, which had been placed on her file almost four years earlier, had prevented her from obtaining credit and purchasing a home. The complainant sought compensation for financial loss she had suffered as a result the alleged breach of the Act.

In U v Major Banking Institution [2004] PrivCmrA 9, the Commissioner declined to investigate the case because the respondent had adequately dealt with the matter.

A default notice regarding the complainant's overdue private bank account was disclosed by the respondent to the complainant's spouse, from whom she was separated. The complainant brought her concerns to the respondent's attention. The respondent wrote to the complainant stating that the error was caused by out-of-date information being held on its database, and that it was at the time, unaware of the complainant's changed circumstances. The respondent apologised for the incident.The complainant was not happy with the outcome and wrote to this Office seeking compensation.

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Queensland Budget details

The Queensland Treasurer has released details of the State's 2004-05 Budget.

Amongst other things, from 1 August 2004, credit card duty will be abolished and the general insurance duty rate will be reduced from 8.5% to 7.5%. In addition, debits tax will be abolished from 1 July 2005.

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Soft dollar commissions

ASIC has released a research report on soft dollar benefits in the financial planning industry. The research explores the types of benefits that are offered to financial planning firms and how they are disclosed to clients.

'If advisers accept benefits with the potential to influence their advice, the law requires they clearly disclose these conflicts of interest to clients', said Mr Greg Tanzer, ASIC's Executive Director of Consumer Protection and International.

'Consumers need to know if their adviser is in a position to give impartial advice as this may affect their decision about whether to act on the advice', said Mr Tanzer.

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Financial System Guarantee Report

The Commonwealth Government has released the results of a technical study to consider the merits of introducing an explicit guarantee of part or parts of the Australian financial system and the merits of possible coverage and design options.

Professor Kevin Davis, Professor of Finance, University of Melbourne lead the technical study.

The Government is seeking public comment.

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Information Security Survey

Deloittes have released their 2004 Global Security Survey for financial institutions.

The goal of the survey is to help participants assess their state of security as against their counterparts.

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ASIC acts against Mortgage Choice

ASIC has announced that it has accepted an Enforceable Undertaking from Mortgage Choice Limited in relation to some claims made in its advertising and promotional material that its advice was 'unbiased'.

Since October 2002, Mortgage Choice has published material in which it made claims that:

Mortgage Choice is 'totally unbiased';
Mortgage Choice provides 'unbiased home loan advice'; and
Mortgage Choice consultants are 'paid the same regardless of which lender or loan you choose'.

ASIC formed the view that the claims were misleading and deceptive given that Mortgage Choice and its franchisees only receive commission from, and provide advice in relation to lenders on its panel, and do not receive commission from, or provide advice in relation to lenders who are not on the panel.

In addition, Mortgage Choice published a 'Customer Charter' which contained the statement, 'Our lender panel is reviewed from time to time to ensure that we have a cross-section of lenders who can offer what we consider to be the best choice of home loans'.

ASIC was concerned that the statement in the Customer Charter was misleading because the selection of members to the panel depended, amongst other things, on the lenders willingness to pay commission and make other payments to Mortgage Choice.

As a result of ASIC's concerns, Mortgage Choice has given an undertaking that:

Mortgage Choice and its franchisees will not make any of the above claims or use the word 'unbiased' in any future advertising or promotional material without including a statement that clearly qualifies that the advice is limited to the 27 lenders from whom it receives commission and other payments;

Mortgage Choice will remove the statement relating to the appointment of lenders to its panel from the Customer Charter;
Mortgage Choice will place corrective advertisements in national and local newspapers; and

Mortgage Choice will provide compensation to any customer who has suffered loss by reason of reliance on the claims that it is unbiased, or that its consultants are paid the same regardless of which lender or loan is chosen.

Mortgage Choice has separately advised ASIC that it intends to discontinue using the word 'unbiased' in all promotional material.

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Gilshenan & Luton is moving

From 24 May, Gilshenan & Luton will be located at

Level 13
259 Queen Street
Brisbane Q 4001.

Phone and fax numbers remain unchanged.

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Financial System Levies

The Minister for Revenue and Assistant Treasurer, Senator Helen Coonan, has released the Report of the Review of Financial System Levies.

The Review examines the framework for collecting levies from the financial services sector to fund the prudential regulation undertaken by APRA, ASIC and the ATO.

After reviewing the report, the Government has accepted the recommendations of the review subject to the changes in the framework not resulting in increases in the amounts paid by the smallest financial institutions.

She said “The Government ... recognises that small financial institutions play an important role in terms of alternate service provision. Competition and choice for consumers and should not be disadvantaged by significant increases in their levies.”

“The most substantial change to existing arrangements will be the separation of the levies into two components, the first of which would continue to be based on cost of supervision and the second on system impact and vertical equity.

The Government intends the new levy arrangements to take effect in time to be implemented for the 2005-06 financial sector levies after appropriate further consultation with industry on the detail of these new arrangements. This consultation will commence following the determination of the 2004-05 financial sector levies, which will be set under the existing legislative framework for the levies.

The next review of the levy-setting arrangements is scheduled to take place during 2008.

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Privacy Amendment Act 2004

The Commonwealth Privacy Act has been amended effective 21 April 2004.

While the amendments are not major, amongst other things, they do:

1. extend the application of National Privacy Principle 9 (“Transborder data flows”) to personal information about persons who are not Australian residents or citizens;

2. enable the Privacy Commissioner to investigate breaches of correction rights relating to persons who are not Australian residents or citizens.

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2004 Financial Services Forum

The Program and Registration Form for our conference on 17-18 June at Coogee in Sydney are now available.

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Debenture requirements

In a recent Information release ASIC has reminded debt raisers of their disclosure obligations and in particular of their obligation to correctly describe the type of debt instrument they are issuing.

An instrument cannot be decribed as a debenture if it is not secured over the issuer's assets. Such an instrument should be called "an unsecured note".

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Financial Services Forum update

Deborah Latimer the Head of Compliance Solutions at BT Financial Group has been confirmed as a speaker at our Financial Services Forum on 17-18 June.

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Another insurer demutualises

The Guardian reports on the demutualisation of UK Insurer Standard Life.

The article reports that " Building societies, the other pillar of the sector, also said there was no need to reconsider their status despite some doomsayers arguing the decline of Standard Life had shown that mutuals lacked the financial muscle of listed counterparts."

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Financial Services Forum update

The Banking and Financial Services Ombudsman Colin Neave has been confirmed as a speaker at our Financial Services Forum on 17-18 June.

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Anti-money laundering reform

The Attorney-General's Department has released an Issues Paper for the Financial Services Sector on their anti-money laundering reporting obligations.

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Privacy and disclosure of information between financial institutions

In H v Financial Institution A and B [2004] PrivCmrA 3 the complainant alleged that there had been a disclosure of personal information (including name, address and financial details) between two financial companies that breached the Privacy Act.

In September 2003 in a District Court action, financial institution B filed an affidavit containing 13 portfolio valuations of its former clients which it alleged were obtained from financial institution A.

As the portfolio valuation was dated 15 December 2001 and the Commissioner was satisfied that both financial institution A and financial institution B collected the information prior to 21 December 2001 (the National Privacy Principle 2 starting date) no action was taken.

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NAB releases APRA report

The National Australia Bank has released a report by the Australian Prudential Regulation Authority (APRA) into irregular currency options trading at the bank.

The National's Chairman, Mr Graham Kraehe, and Chief Executive, Mr John Stewart, also outlined the bank's response to the APRA report and its proposed remedial actions.

The Chief Executive of the National, Mr John Stewart, said the bank would act as quickly as possible to implement all of the remedial actions proposed by APRA including capital adequacy initiatives to take the National's total capital to 10 per cent. This will also result in termination of the current share buy-back.

"We have already started to implement a series of actions to enhance our policies and systems," he said. "We will continue to work co-operatively with APRA, and other regulatory authorities, to implement all remedial actions within agreed timelines."

"The first step will be to incorporate the remedial actions proposed by APRA into the four point action plan we announced earlier this month. We will then report regularly to the Board and APRA on implementation of the remedial actions."

Read the reports by Pricewaterhouse Coopers, Deloittes and Blake Dawson Waldron into NAB's foreign exchange currency losses.

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APRA RELEASES DETAILS OF “FIT AND PROPER” STANDARDS

The Australian Prudential Regulation Authority (APRA) has released, for public consultation, proposed “fit and proper” prudential standards for authorised deposit taking institutions, general insurance and life insurance institutions.

Under the proposed requirements:

1. APRA-regulated institutions will need to develop their own fit and proper policies that include assessment of the fitness and propriety of individuals to act in positions of responsibility;
2. these policies must, at a minimum, address the fit and proper requirements that APRA expects responsible persons to meet, which are set out in the proposed prudential standards; and
3. APRA will only become involved in an assessment when it has specific concerns about an individual.

APRA’s Chairman, Dr John Laker, said the proposals are the first step in the introduction of harmonised governance requirements for these industries.
“The proposals are designed to reflect community expectations about persons who fill positions of responsibility in these industries and will set minimum benchmarks for people in, or wishing to enter, these industries at director, senior management or advisory level,” he said.

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Queensland stamp duty changes

The Queensland Government has announced a range of new concessions will apply to real estate transactions on or after May 1, instead of July 1 as originally planned.

People buying a first home worth up to $250,000 will pay no stamp duty and no mortgage duty - a saving of $3000.

The amendments will:

• Raise the threshold for the stamp duty rebate from $80,000 to $250,000.

• Raise the First-Home Buyers Mortgage Duty exemption from $100,000 to $250,000.

• Introduce a new incremental rebate system for purchases above $250,000, phasing out the stamp duty rebate at $500,000 instead of $160,000.

Treasurer Mr Mackenroth said legislative amendments would be introduced into Parliament on March 18 and become the second Bill to be debated after the controversial land-clearing reforms.

Mr Mackenroth said the amendments would provide relief to "almost all" first-home purchases and housing prices would be monitored to determine whether the thresholds should be raised.

More

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2004 Financial Services Forum

Our Financial Services Forum will be held on 17 and 18 June, 2004 at Coogee. Download our early notification flyer.
NRO's can use this to help satisfy their training requirements.
Register to be sent the final conference brochure.

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Can banks grow beyond M&A?
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"Can banks grow beyond M&A?" from McKinsey explores the more complex agenda bank managers now face: boosting productivity and seeking out underserved customers. Such strategies will become critical as electronic payments cannibalize check-processing revenues and nonbank financial specialists continue to lure away the best customers.

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Warning on "wrap loans"
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The Queensland Office of Fair Trading (OFT) has warned consumers to make sure they understand all the implications of buying a home under a 'wrap loan' or 'vendor finance' scheme.

'Wrap loans' happen when a property is purchased by an individual or a company, and they then on-sell it at a profit to people who may not be able to get a loan from a bank.

The 'wrapper' obtains a mortgage from a bank and gets the consumer to repay it through the 'wrapper' at a higher rate - and keeps the difference. Because the consumer does not have a direct relationship with the bank, if things go wrong, the Consumer Credit Code may not apply.

Advertising for these schemes can include phrases like "No deposit? No worries" or "Can't get finance? We can help you".

Under a 'wrap loan' scheme, purchasers do not legally own the property until the final instalment on the loan is paid. "If the consumer misses even one payment on a loan of this type, they can be left with nothing," Fair Trading says.

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Rural/remote banking services report released
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On 15 January 2004, the Parliamentary Joint Committee on Corporations and Financial Services, published its report ‘Money Matters in the Bush’, on the level of banking and financial services available to people living in rural, regional and remote Australia and its Supplementary Report on ATM fees.

The major recommendations of the report call for:

1. improved customer access to trained bank officers with local knowledge, to overcome the breakdown in the customer/bank relationship;
2. banks to provide more effective education and training programs in the use of new technology, such as internet and telephone banking, especially to ensure older and indigenous Australians have the skills, confidence and motivation to use these technologies;
3. a review of the Rural Transaction Centre Program to enhance its success;
4. financial institutions to make greater use of Australia Post’s Giropost;
5. the introduction of industry standards for electronic banking in remote Australia;
6. the protection against unreasonable differential rural foreign ATM fees in areas where there is only a foreign ATM;
7. the Branch Closure Protocol to incorporate comprehensive community consultation, a community impact statement, six months notice and cost free transfer of accounts into its provisions;
8. improved portability of accounts between financial institutions, especially in the situation of branch closures;
9. measures to be taken to remove unnecessary regulatory impediments that prevent smaller approved deposit taking institutions from expanding into rural areas;
10. a comprehensive program to improve the financial literacy of indigenous Australians in remote areas of Australia;
11. improved consumer protection measures regarding bank account administration for isolated people;
12. the refinement of APRA’s Points of Presence Database and measures taken to ensure proper analysis; and
13. the adaptation to Australia of overseas measures to encourage banks to be more involved as invigorators of the economic life of communities in rural, regional and remote Australia.

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Queensland stamp duty reduction promised
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The Queensland Premier has promised to increase the threshold for receiving a full stamp-duty rebate from $80,000 to $250,000 for first-home buyers from July 1 if is re-elected on 7 February.

A re-elected Beattie government will also increase the amount at which the partial stamp-duty rebate for first home buyers will cut out to $500,000. The rebate now cuts out completely at $160,000. This reflects the increase in the price of the average home.

More on the Queensland election from the ABC

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Bank not Obliged to Disclose Property Valuation to Loan Customers
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In ACCC V Oceana Commercial Pty Ltd & Ors [2003] FCA 1516, the Federal Court of Australia dismissed a claim by the ACCC that the Commonwealth Bank was obliged to provide certain investment loan customers with the contents of its valuation of the investment property, or otherwise alert them that they may have paid too much for the property so that they might seek their own advice.

More

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Draft Code of Conduct for soft dollar payments
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On 16 December 2003, the Investment and Financial Services Association
(IFSA) and the Financial Planning Association of Australia (FPA)
released a Draft Code of Conduct on Alternative Remuneration (soft
dollar payments) that regulates certain industry remuneration
practices and that will be adopted by members of each Association.

The Draft Code incorporates three key proposals:
· Banning of practices such as gifts and conferences that are
linked to product sales;
· The establishment and maintenance of a public register for
payments and receipts of appropriate transactions with a value greater
than $300;
· Comprehensive disclosure in appropriate regulatory documents
such as the Product Disclosure Statement (PDS) and Financial Services
Guide (FSG) of appropriate types of alternative remuneration.

The Code is in response to changing community expectations and is the
latest initiative implemented by the financial services industry to
improve operating practices and transparency on remuneration.

The draft Code of Conduct is now being
circulated for comment throughout the industry and the two
organisations hope to finalise it by the end of February, for
operation shortly thereafter.

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Australia endorses global anti-money laundering standards
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The Minister for Justice and Customs, Senator Chris Ellison, has announced that Australia is to implement new global standards aimed at cracking down on money laundering and terrorist financing. He said the Australian financial sector and other industry areas will be consulted as part of the implementation of a range of global anti-money laundering standards issued by the Financial Action Taskforce on Money Laundering (FATF), a 33-member international body of which Australia is a founding member.

Senator Ellison said the Government will now proceed with a fundamental overhaul of Australian legislation, including the Financial Transaction Reports Act 1988. The new standards will oblige Australia to expand customer due diligence requirements for financial institutions and extend anti-money laundering obligations to non-financial businesses and professions such as real estate agents, dealers in precious metals and stones, accountants, trust and company service providers, legal professionals and notaries.

The Attorney-General's Department will coordinate an extensive consultation process which will involve the preparation of industry-specific issues papers and direct consultation with industry sectors. Proposed anti-money laundering legislation will then be released for public comment. Senator Ellison also announced the establishment of a Ministerial Advisory Group to assist with the development of anti-money laundering measures.

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ASIC CODES OF PRACTICE REPORT
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The Australian Securities and Investments Commission (ASIC) has released its annual monitoring report on compliance with the Banking, Credit Union and Building Society Codes. The report covers the period from April 2002 to March 2003.

This is the last time that ASIC will report on the Code of Banking Practice, as from next year, an independent body will undertake monitoring responsibilities.

Findings
The report shows an increase in disputes reported under the Code of Banking Practice of 18 per cent (which translates to an increase of 11 per cent per million transactions). Of these, 40.2 per cent were resolved internally in favour of the customer, and a further 24.3 per cent by mutual agreement.

Disputes about fees and charges were the most common cause of consumer dispute. This is in contrast to the two previous monitoring reports, which showed that EFT (PIN based) transactions were the most common cause of disputes reported under that code.

The number of disputes recorded under the Credit Union Code and Building Society Code fell this year. Credit union disputes fell by 19 per cent, following an increase in the previous reporting period. The total number of disputes recorded under the Building Society Code also fell significantly, by 46 per cent. However, this does not provide a complete picture of building society activity, as only 8 of the 14 building societies operating in Australia currently subscribe to that code.

The most common cause of dispute recorded under the Credit Union and Building Society codes related to EFT (PIN based) transactions.

Background - EFT Code
In previous years, ASIC has reported on compliance with the EFT Code as well as the other payments systems codes. However, this year, EFT Code figures are not reported on because of the major amendments to that code, but will be covered again in the next report.

The EFT Code was significantly amended from 1 April 2002. The revised code extends coverage from ATM and EFTPOS transactions to all forms of electronic banking, including telephone, internet and PIN based credit card transactions. As a result, this year's EFT returns are not easily comparable to previous year's results, and new systems are being developed to properly capture the expanded range of information under the Code. Data will again be provided next year.

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