Queensland credit business duty abolished from 1 January 2006

Queensland credit business duty will not be payable on any credit transactions on or after 1 January 2006.

However duty will be payable on transactions before 1 January 2006.

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Draft anti-money laundering and counter-terrorism financing Bill released

The Minister for Justice and Customs, Senator the Hon Chris Ellison, has released an exposure AML/CTF Bill and sample AML/CTF Rules.

The exposure Bill and sample AML/CTF Rules will be available for public comment until Thursday 13 April 2006.

The exposure Bill regulates money laundering and terrorism financing risks specific to a range of industry sectors. The general principles for the proposed AML/CTF system are set out in legislation, supplemented by legally-binding AML/CTF Rules, and non-binding Guidelines.

AML/CTF Rules, being developed by the Australian Transaction Reports and Analysis Centre (AUSTRAC) in consultation with industry, will set out specific requirements on matters such as identity verification, ongoing due diligence, reporting of suspicious matters, and the development of AML/CTF Programs.

The new laws will affect the following industry sectors:

• Accountants and financial planners
• Banks, building societies and credit unions
  
• Bullion dealers
• Bureaux de change
• Casinos
• Gambling service providers
• Insurance sector
• Remittance service providers
• Legal practitioners
• Securities and derivatives dealers

The Bill would impose either civil penalties, including fines, or criminal penalties for more serious failure to comply with the new regulations.

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Seasons' Greetings
We wish you a safe and happy holiday season and a prosperous 2006!

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Financial literacy research released

ANZ Bank has released two major research studies into adult financial literacy and the causes of financial difficulty in Australia. These studies highlighted that 80% of Australians feel “in control” of their financial situation.

For the first time the research explores the issues which cause a small group of Australians (around 2% of people), who have borrowings, to feel out of control most or all of the time.

Key findings include:

• 84% of people surveyed felt 'well informed' when making financial decisions, up from 80% in 2003.
• Substantially more people knew how to use, and used, newer payment methods in 2005 than in 2002. Usage of electronic channels rose markedly, with the strongest rises in internet banking (from 28% to 40%), BPay (from 50% to 60%) and direct debit (from 50% to 60%).
• While the overall results confirm that Australian society is mostly financially literate, there are certain groups that have particular challenges. The lowest levels of financial literacy were associated with: those having lower education (Year 10 or less); those not working, for a range of reasons, or in unskilled work; those with lower incomes (household incomes under $20,000); those with lower savings levels (under $5,000); single people and people at both extremes of the age profile (aged 18–24 years and 70 years and over).

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New rules for mortgagees of Queensland land

The Natural Resources and Other Legislation Amendment Bill 2005 Queensland was introduced into Queensland Parliament on 8 November 2005. When passed, it will amend the Land Title Act 1994 with the aim of improving the operation of this Act in relation to the conduct of inquiries into fraud and errors in the freehold land register by requiring mortgagess to adopt procedures to identify mortgagors.

It will reduce the State’s exposure to claims for payment of compensation for land title related frauds in circumstances where reasonable due diligence measures were not taken by a mortgagee.

Under the Bill there is an obligation on a mortgagee (whether it becomes a mortgagee by the transfer of an existing mortgage or by the registration of a new mortgage) to take reasonable steps to ensure that the person signing as mortgagor is in fact the mortgagor. The Registrar of Titles will specify steps that are deemed to be reasonable. A mortgagee is required to keep written records (in the approved form) of all steps taken to verify the mortgagor's identity, and to keep for 7 years copies of all documents and other evidence used for this verification.

If a mortgagee does not comply with the investigative and record-keeping requirements, and the mortgage or transfer of mortgage is fraudulently executed, the mortgagee loses the 'indefeasible' title it would usually enjoy by having its interest registered. The Registrar would also be able to remove the mortgage from the title. The practical effect of this is that all registered interests (including subsequent mortgages) would prevail over the mortgage.

The mortgagee also commits an offence if it does not keep the records required.

The Bill also restricts a mortgagee's power of sale where the mortgage involved (or was associated with) fraud against a landowner or crown lessee (for example, where the landowner's signature was forged) even if the mortgagee has complied with the procedures. The Bill caps the amount of interest that is recoverable, and limits the recoverability of other costs associated with exercising power of sale.

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Reverse mortgages: ASIC comments

ASIC has released a report into equity release products following increasing interest in 3 types: reverse mortgages, home reversion schemes, and shared appreciation mortgages (SAMs).

The Equity Release Products Report includes tips for consumers who may be considering equity release products.

ASIC warned that all equity release products are complex and, if used inappropriately or with poor advice, there are significant risks for consumers.

From the regulatory viewpoint, ASIC commented:

The existing regulatory system was not designed to address the issues raised by equity release products, which take the form of a credit arrangement but nevertheless have some of the attributes of an investment product.

At the product level, the principal vehicle for regulation of credit, the Uniform Consumer Credit Code (UCCC), does not provide for disclosure of risk, nor provide a mechanism for disclosing elements of the cost of the product, such as the forgoing of equity, that are not translatable into an interest rate. Finally it will not apply at all where the funds obtained are to be used for investment purposes.

The principal vehicle for the regulation of investment products, the Corporations Act 2001 (Corporations Act), has limited application to some home reversion and shared appreciation products, depending on their terms, but generally does not apply to reverse mortgage products.

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Network Law is working again

Errors were reported on the site on Wednesday and Thursday following some maintenance on Tuesday night. The problems have now been fixed. We apologize for any inconvenience.

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Consumer Credit Code clarification

The Uniform Consumer Credit Code Management Committee has released a Solicitor Lending, Instalment Contracts and the Uniform Consumer Credit Code Consultation Package.

The purpose of the amendments is to confirm that the following forms of credit are covered by the Code:

• terms sale of land and conditional sale of goods;
• ‘tiny terms’ contracts; and
• solicitor lending.

Submissions close 9 December 2005.

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Queensland transfer duty changes announced

The Queensland Premier has announced that from 1 July 2006, rates of transfer duty for Queensland property valued above $500,000 will increase.

The marginal rate for properties valued from $500,001 to $700,000 will increase from 3.75% to 4% and for properties above $700,000 the rate will increase from 3.75% to 4.5%.

However, the threshold for the home concession will increase from $300,000 to $320,000. This means that there will be no increase in transfer duty payable for principal places of residence valued up to $700,000. Additional duty will, however, be payable for purchases of a principal place of residence over $700,000.

Investors will not get the benefit of the principal place of residence concession.

Download the revised duty rates

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Debt collection guideline for collectors and creditors

The Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC) have issued a jointly produced publication, aimed at improving standards in the debt collection industry: Debt collection guideline: for collectors and creditors

A debt collector who breaches the harassment and coercion provisions of the Commonwealth consumer protection laws risks fines of up to $220,000 for individuals or $1.1 million for a corporation. Similar fines are risked if a collector is convicted of knowingly making false or misleading representations (criminal prosecution).

Apart from criminal sanctions, ASIC or the ACCC can seek civil court orders against a collector, including injunctions against future conduct and non-punitive orders, such as corrective advertising.

Someone who has suffered loss or damage from a collector’s action may be able to recover their losses in certain circumstances.

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Daylight saving times 2005-2006

Tasmania started daylight saving time on 2 October. It will be 1 hour ahead of the eastern states until 30 October.

Australian Capital Territory, New South Wales, Victoria and South Australia will commence daylight saving on 30 October.

All states will finish daylight saving on 26 March 2006.

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

From 30 October when it is 9am in Sydney, Melbourne and Hobart it will be 8am in Brisbane, 8.30am in Adelaide, 6am in Perth and 7.30am in Darwin.

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RBA says Australia is financially stable

In its latest Review, the Reserve Bank of Australia says:

The Australian financial system remains in good shape. The banking sector, in particular, is continuing to perform strongly, supported by the ongoing expansion of the Australian economy. Banks remain well capitalised, are experiencing historically low levels of bad debts and, despite a pick-up in competition, are continuing to record high rates of return on equity.

It says there are 3 areas of risk:

• the international environment;
• the household sector;
• intensified competition in the banking sector.

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Transaction fee disclosure

ASIC has released a report on disclosure of transaction fees by banks, building societies and credit unions.

The report, Good transaction fee disclosure – An ASIC report, follows the release of ASIC’s Guide to Good Transaction Fee Disclosure for Bank, Building Society and Credit Union Deposit and Payments Products (Transaction Accounts) issued in June 2002.

The ASIC guide sets out principles of good disclosure for the five key areas where ASIC believes transaction fee disclosure is particularly important. These are:

• when a consumer is selecting a product or product provider;
• when changes are made to the level of fees or to the details around when, why or how they are charged;
• when a statement is received;
• when a consumer is actively seeking information; and
• immediately prior to making a transaction.

The ASIC report reveals that improvements have been made to the information on fees in statements to consumers.

It also notes that the circumstances when dishonour fees are payable need better disclosure.

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Regulation of online calculators

ASIC has released a consultation paper which discusses the licensing and regulatory issues associated with online calculators.

The paper contains proposals for 3 types of calculators:
(a) generic calculators;
(b) product-specific calculators; and
(c) risk profilers.

ASIC distinguishes them as follows:

"Generic calculators
1.2 Generic calculators are:
(a) mathematical tools (i.e. they only produce numerical results)
(b) that do not produce results relating to one or more specific financial products.

1.3 Examples of generic calculators include the following (but only where they do not relate to specific financial products):
(a) savings calculators;
(b) managed investment calculators; and
(c) life insurance calculators.

1.4 Typically, generic calculators help the user calculate:
(a) the estimated value of total savings or investments at a future point in time; and/or
(b) the estimated level of saving, investment or life insurance cover required to achieve a particular financial goal.

Product-specific calculators
1.5 Product-specific calculators are:
(a) mathematical tools (i.e. they only produce numerical results)
(b) that produce results relating to one or more specific financial products.

1.6 Examples of product-specific calculators include:
(a) calculators that are connected to promotional material for a named financial product (e.g. by including a link to the Product Disclosure Statement for the product or a link to ‘Apply now’ on the calculator’s results page);
(b) superannuation or managed investment calculators that allow the user to select, perform calculations on, and compare the estimated performance of named financial products (or investment strategies within a product);
(c) life insurance calculators that enable the user to calculate the sum insured (i.e. the amount of insurance they should take out) as part of the process of applying for, or obtaining a quote for, a specific life insurance product; and
(d) warrant calculators that enable the user to calculate and compare the projected income and taxation for specific instalment warrant products.

Risk profilers
1.7 Risk profilers are tools that, based on the user’s answers to a series of questions about investment preferences, assess the user’s attitude to risk.

1.8 Risk profilers are generally not mathematical tools (i.e. they do not produce numerical results). Although the result may be derived using mathematical formulae (e.g. by assigning the user’s answers scores and using the total to produce a result), the results themselves are not numerical (e.g. the output is that the client has a risk weighting, such as ‘conservative’ or ‘aggressive’)."

Comments are due by 23 September.

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Announcing 2005 Financial Services Forum

Network Law's forum this year will discuss "Changes in Control of Mutuals: A Practical Guide".

It will deal with takeovers, demutualisation, mergers, winding up and defences for mutual financial institutions.

It will be held on Friday 7 October in Sydney.

For more information download the brochure.

We are still confirming a keynote speaker. Details will be announced as soon as possible.

Book now.

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Privacy Commissioner investigates credit providers

The Privacy Commissioner, Karen Curtis, has released case notes regarding personal information handled by credit providers.

The cases include:

OPC v Banking Institution [2005] PrivCmrA 11 : the Office conducted an own motion investigation (OMI) into the automated disclosure, by a banking institution, of personal information following the use of an incorrect facsimile number.

Following the Office's OMI, the banking institution stopped using a facsimile-based service to receive customers' personal information, and introduced a secure on-line service and permanently decommissioned the fax number. The other organisation involved also confirmed that it blocked all faxes other than those from designated numbers.

Q v Credit Provider B [2005] PrivCmrA 16: it was alleged that credit provider B had re-listed an overdue account on an individual's consumer credit information file after it had been purged from their record.

Following the Commissioner's investigation credit provider B acknowledged that it had made an error and that the listing should be removed. Credit provider B contacted the credit reporting agency and instructed the credit reporting agency to remove the listing immediately.

S v Credit Provider [2005] PrivCmrA 18:the complainant alleged that a commercial credit default was listed on their consumer credit information file and an enquiry was listed without a loan application.

Following an investigation by the Office, both the enquiry and the payment default were removed from the complainant's credit file. The Commissioner sought from the credit provider written evidence that its staff were provided with Privacy Act training. The credit provider also provided a written apology to the complainant.

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New Features on Network Law

In an ongoing effort to provide better services to you, in response to your feedback we have implemented the following changes:

• Username/password: you are now able to change your own username and password;
• instruction sheets for new mortgages, new discharges and new stampings have been improved and you are now able to print them;
• Auto-emails can now be sent to multiple contacts in your organisation.
  

If you have any queries about these changes, please contact your local Network Law representative.

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Dealing with customers in financial difficulty

The Banking and Financial Services Ombudsman has set out the guidelines he follows when customers write to his office to complain that a credit provider has refused to agree to a proposed repayment plan for a debt that the customer is unable to repay because of general financial difficulties.

The guidelines apply where there is no maladministration or other breach in relation to the original lending but there has been a subsequent change in the customer’s circumstances. And if there is a breach of statutory provisions to do with misleading, deceptive or unconscionable conduct or unjust or unfair contracts, his approach will be different.

The new Code of Banking Practice introduced an obligation to try to help individual and small business customers overcome their financial difficulties and to provide information about the UCCC hardship variation processes if they could apply to the customer’s circumstances. Even if the Code does not apply to you, the Ombudsman comments that non-subscribing banks and other credit providers should consider implementing the guidelines.

Acting fairly and reasonably, in the Ombudsman's view, requires that credit providers:
• give genuine consideration to a repayment proposal or hardship variation application and any reasonable alternatives that will help the customer overcome their financial difficulties;
• give reasons for any rejection of the proposal, preferably in writing;
• ensure that those reasons reflect legitimate considerations and are referable to the particular customer’s circumstances;
• not start or conclude enforcement action before a decision is made and communicated; and
• respect the customer’s appointment of an advisor and, if one is appointed, not deal directly with the customer.

Acting consistently and ethically, in the Ombudsman's view, requires that credit providers:
• have clear and reasonable internal processes for assessing hardship variation or enforcement postponement requests and other repayment proposals;
• be able to demonstrate that their staff have followed those processes;
• record and keep any promises made, for example, about suspending enforcement action, and record and keep to any agreement reached. If that includes that the arrangement be reviewed at a certain date, credit providers should not seek to review the arrangement earlier if the customer is keeping to it. Any review should be based on a genuine consideration of the customer’s position at that time;
• ensure that any collection related correspondence is consistent with what has been promised or agreed; and
• confirm in writing any agreement reached and ensure that collection agents and/or later assignees have a copy.

Finally the Ombudsman's view is that "informing a customer of the UCCC provisions includes telling the customer, at the time of any rejection of a hardship variation application, that they can apply to the relevant court or tribunal under s 68 of the UCCC for an order changing the contract. This information should be given whether or not the credit provider thinks that the application would succeed – the obligation is to do so if those provisions could apply to the customer’s circumstances."

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Low doc loans and tax non-compliance

The Commissioner of Taxation has announced the results of the ATO's initial investigation into borrowers of "low doc loans":

Although the ATO findings indicate concerning levels of non-compliance amongst the users of low documentation loans, many users of these products are fully meeting their tax responsibilities. Many are funding repayments from legitimate sources like inheritances and capital gains, often derived from investments in property.

Where income has been omitted most of it has been derived from cash economy business activities predominantly in the building and construction industry.

The ATO will continue to check whether low doc borrowers have been paying tax.

He described 2 initiatives taken by the ATO:

In the first of our compliance initiatives, around 350 taxpayers were selected randomly from eight lenders to get a picture of the broader population using these products. This information was obtained using the access powers in the tax law. It identified failure to lodge tax returns as a primary concern.

Around 50 per cent of these people had not lodged returns – the average was three years outstanding.

In a second initiative we undertook a risk based approach that showed that, for certain low documentation loan users, concealment of income is a significant concern.

These high risk cases were identified using Tax Office and other information including complaints made against some mortgage brokers to offices of fair trading. This led us to focus more closely on the clients of certain mortgage brokers. A field of around 400 high risk clients were identified.

140 of these were selected for the first round of audit activity. These cases were chosen because the broker involved was also a tax agent who had been identified as high risk as part of our profiling of tax agents. The broker/tax agent was also subject to audit.

These audits raised over $23 million in tax and penalties.

Audits of the remaining high risk clients of selected brokers are now underway.

In the coming year we will systematically check the lodgement status of people obtaining finance through low documentation loans, and potentially other sources. We will work with the finance industry on the best way to achieve this. Because most low documentation loans are made subject to mortgage insurance we will explore the possibility of matching insurance company records against our data as a way to streamline this process.

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Debits tax abolished

From 1 July 2005, debits tax in Victoria, Queensland, Western Australia, South Australia, the Australian Capital Territory and the Northern Territory will be abolished for transactions from that date. (New South Wales abolished debits tax in 2002.)

The tax was charged on debits to cheque accounts.

Tasmania's debits duty on bank and credit card accounts will also be abolished from 1 July 2005.

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Electronic record retention for tax purposes

The ATO has issued Taxation Ruling 2005/9. This Ruling explains the principles associated with the retention of electronic records created from business transactions including those carried out through the internet for the purposes of section 262A of Income Tax Assessment Act 1936. It replaces draft Taxation Ruling TR 2004/D23.

It supplements Taxation Ruling TR 96/7 (Income tax: record keeping - section 262A - general principles) and Taxation Determination TD 2002/16 (Income tax: what are the obligations under the Income Tax Assessment Act 1936 where a business chooses to keep some of its records as encrypted information?) which should be read in conjunction with this Ruling.

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Super choice advice

ASIC has warned employers who do not have AFS licences should avoid providing financial advice to employees seeking guidance about super choice.

ASIC says that employers are under no obligation to talk with their employees about super choice, which comes into force on 1 July. However, it anticipated that employers would be asked by employees about how they could select their own fund.

You need to be careful that statements you make to employees about superannuation or super choice are not financial product advice. If you give financial product advice without being licensed or authorised to do so, or if what you say is misleading, you may be breaking the law. Moreover, advice that is inappropriate to employees' circumstances could influence employees to make choices that cost them money.

ASIC has issued a list of frequently asked questions to explain what constitutes financial advice, and what information employers can offer without breaching the Corporations Act.

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APRA releases prudential standards on governance

The Australian Prudential Regulation Authority (APRA) has released draft prudential standards and a discussion paper outlining proposed governance arrangements for authorised deposit-taking institutions (ADIs) such as banks, building societies and credit unions.

The objectives are to ensure that an ADI is well managed, has access to appropriate independent expertise, and gives due consideration to the impact of its decisions on depositors.

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Misleading mobile lending employment advertisement

In 2004 the ACCC alleged Wizard Home Loans Pty Ltd breached section 52 of the Trade Practices Act by placing advertisements for Mobile Lending Managers in newspapers in New South Wales, Victoria and Queensland which were liable to mislead people into believing the positions were employed positions when they were self-employment opportunities.

The ACCC further alleged that annual remuneration figures provided to the managers were likely to mislead.

The ACCC also took representative action seeking compensation on behalf of an individual who responded to an advertisement and accepted one of the positions.

Wizard Home Loans Pty Ltd has now agreed to compensate a candidate for a Mobile Lending Manager position after admitting that it engaged in misleading conduct. The Federal Court has ordered Wizard, by consent, to compensate Mr David Cassar who responded to an advertisement and accepted the position.

Wizard has admitted that it breached section 52 of the Trade Practices Act 1974 by making representations to Mr Cassar, in an interview, about a level of commission that a good performing mobile lending manager may earn when there were not reasonable grounds to do so.

Wizard has reviewed its recruitment practices. The court proceeding settlement provides for:

• a declaration that Wizard misled Mr Cassar in an interview for a position as a mobile lending manager with Wizard
• a compensation order for Wizard to pay a confidential sum to Mr Cassar representing lost earning opportunity, and
• costs.

In addition Wizard has agreed to give a section 87B undertaking to the ACCC that it will not, for a three year period, make representations to any mobile lending manager candidate about the annual commission that person may earn unless there are reasonable grounds, after considering:

• the average annual commissions earned by mobile lending managers at that time
• the average annual commissions earned by mobile lending managers engaged in the geographical area where that mobile lending manager will be or is engaged
• the level of residential sales and sale prices in the geographical area where that mobile lending manager will be or is engaged, and
• the number of mobile lending managers engaged at that time and to be engaged during the next 12 months in the same geographical area.

As part of this undertaking, Wizard will implement and maintain a trade practices compliance program for a period of three years designed to make Wizard personnel aware of their responsibilities and obligations with respect to section 52 of the Act in connection with the recruitment of mobile lending managers.

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States and Commonwealth agree: taxes to be reduced

Six States and Territories have agreed to abolishing a number of state taxes over the next six years from 2005-06 to 2010-11.

In an agreement with the Commonwealth Treasurer, Victoria, Queensland, South Australia, Tasmania, Australian Capital Territory and the Northern Territory have agreed to the program in return for GST payments. New South Wales and Western Australia have not yet reached agreement.

The taxes to be abolished are:
* Stamp duty on non-quotable marketable securities;
* Stamp duty on leases;
* Stamp duty on mortgages, bonds, debentures and other loan securities;
* Stamp duty on credit arrangements, instalment purchase arrangements and rental arrangements;
* Stamp duty on cheques, bills of exchange and promissory notes; and
* Stamp duty on business conveyances other than real property, such as goodwill, supply rights of a business and intellectual property.

The states and territories do not support the abolition of stamp duty on business conveyances on real property.

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AUSTRAC launches anti-money laundering elearning application

AUSTRAC has launched its anti-money laundering (AML) elearning application.

It has been designed to assist cash dealers, industry associations, members of the public and other interested stakeholders in understanding the various reporting and Know Your Customer obligations within the Financial Transaction Reports Act 1988 (FTR Act).

It consists of a study guide and 15 separate modules.

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ecommerce and Consumer Credit Code update

Last year the UCCCMC released a draft amendment bill designed to address changes in technology since the Credit Code commenced in 1996.

It has now released details of amendments that have been made to the Consumer Credit (Queensland) Amendment Bill 2004 (the Bill) and the Consumer Credit Amendment Regulation (No.1) 2004 (Regulations) as a result of submissions received by it.

Changes include:

Inclusions of Mortgages in section 162(1)

Mortgages will now be required to conform with requirements as to legibility and language.

Section 172

Amendments have been made to confirm that a notice can be provided by electronic communication.

Consent to receive electronic communications

Amendments have been made to provide for the debtor to specifically consent to receive electronic communications. Consent cannot be implied from a person merely providing their email address.

The language of specific consent is drawn from the Electronic Funds Transfer Code of Conduct (at clause 22.1(b)) (EFT Code) which refers to a user’s agreement to be given by "specific positive election after receiving an explanation of the implications of making such an election”.¹

Building on the EFT Code requirements, before consent is given it will be necessary to inform the debtor, mortgagor or guarantor that:

a) paper documents may no longer be given

b) electronic communications should be checked for notices; and

c) consent to the giving of documents by electronic communications may be withdrawn at any time.

Date of Document or other document - 173(1)(c)

Section 173(1)(c) raises issues about the receipt and attribution of electronic communications. Given the potential for credit providers to contractually shift the time of receipt from entry into the consumer's information system to exit from the credit provider's, amendments have been made to apply the receipt rules of section 13 of the ETA in all cases, without the option to vary.

Attribution

A specific provision has now been included within the amendments that expressly invokes the attribution rules of section 14 of the ETA, but without the option to vary.

¹ "Specific positive election" is also adopted in the Code of Banking Practice.

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Privacy obligations of financial institutions and brokers
Collectors of personal information from borrowers must take care with the information they receive.

National Privacy Principle (NPP) 4.1 provides that an organisation must take reasonable steps to protect the personal information it holds from misuse and loss and from unauthorised access, modification or disclosure.

This Information Sheet gives useful tips for organisations complying with that obligation, including physical security, computer security, communications security and personnel security.

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Queensland BAD Tax to end on 1 July

As announced last year Queensland debits tax will end on 1 July 2005.

Debits tax will continue to apply until 30 June 2005. Any debit tax liabilities accruing up to and including 30 June 2005 will remain payable.

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Third party signatory requirements

Austrac has issued an information circular clarifying which account signatories must be identified by cash dealers under the Financial Transaction Reports Act.

A key quote:

Any individual who has the ability to authorise a debit transaction for an account is considered to be a signatory to that account and therefore must be identified by the cash dealer offering the account. This applies regardless of the signatory being a third party acting as a professional for their client, an authorised staff member of an entity, the formal holder of the account, or a subsidiary card-holder of the account (if applicable).

The circular also deals with an individual who has ‘authorising officer’ access to a software-based product used to transmit electronic payment instructions to a cash dealer in relation to an account.

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ABS Housing Finance stats January 2005

The ABS has released its housing finance figures for the month ending January 2005.

Banks
The number of owner occupied dwellings financed by banks (seasonally adjusted) increased by 1.1% in January 2005, after an rise of 1.1% in December. The trend series increased by 1.0% in January, the seventh consecutive monthly increase.

Non-banks
Non-bank commitments for owner occupied housing (seasonally adjusted) decreased by 1.6% in January 2005, following increases in six of the past seven months. Wholesale lenders were down 2.7% while permanent building societies were up 2.3%. The non-bank trend series increased by 0.4% in January 2005, the seventh consecutive monthly increase.

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Misleading and deceptive advertising by broker

ASIC has accepted an enforceable undertaking from Mortgage Point Pty Ltd (Mortgage Point) in response to its concerns that since October 2001, Mortgage Point, a Melbourne-based mortgage orginator, made potentially misleading and deceptive statements in its promotional brochures.

Mortgage Point published various brochures in which it claimed to offer 'independent', 'impartial' and 'unbiased' advice about mortgages.

The brochures stated that Mortgage Point:

• offers an impartial and unbiased loan advisory service;
• gives free unbiased advice;
• acts as an independent mortgage broker; and
• provides independent advice.

ASIC formed the view that the claims were misleading and deceptive because Mortgage Point and its agents:

• only receive commission from, and provide advice in relation to lenders on its panel; and
• do not provide advice in relation to lenders who are not on its panel.

As part of the enforceable undertaking, which is provided under the consumer protection provisions of the ASIC Act, Mortgage Point has given an undertaking that:

• it will not make any of the above claims or use the words 'unbiased', 'impartial' or 'independent' in any future advertising or promotional material;
• it will provide compensation to any customer who has suffered loss as a result of relying on the claims Mortgage Point is 'unbiased', 'impartial' or 'independent';
• it will implement a compliance program; and
• it will make a financial contribution towards consumer education or similar programs.
  

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Debt collection guidelines issued by ACCC and ASIC

The ACCC and ASIC have released their joint draft debt collection guidelines for public consultation.

The draft guideline details the provisions of the federal consumer protection legislation most relevant to the debt collection industry, including prohibitions against misleading and deceptive conduct, harassment and coercion, and unconscionable conduct.

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New Comparison Rates Regulation

The comparison rate warning has been reviewed.

There will now be a short warning and a long comparison rate warning. The shortened warning can be used in credit advertising however the long warning must still appear in the comparison rates schedules. The warning should be given in the same form as the comparison rate unless the advertisement is on television, the Internet or other electronic display medium. The two warnings are alternatives (that is, either can be used).

The short warning is as follows:
'WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.'

The previous warning in regulation 33C has been adopted as the long warning without amendment. Download the regulations.

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ABS Lending Finance stats

The ABS has released its lending finance statistics for November 2004.

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ASIC gives 2005 Pie in the Sky financial scheme awards

ASIC has given its 2005 Pie in the Sky Award for outrageous financial schemes to
a so-called 'interest-free loan' that was offered to Queenslanders, with 220 people investing $2.4 million in The Carsworthy Scheme. People were told if they purchased a car through a car buyers club, and borrowed a little more from their financier and invested it offshore, the high returns would repay their car loans. In fact when the offshore investments failed to deliver promised returns, people were left to find their own repayments, often for very high loans which they would probably not have otherwise entered into.

For the runners-up, go here.

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APRA warns: “Bad loans are made in good times”

APRA Chairman John Laker recently gave a speech on the Australian Banking Industry.(PDF)

Key comments included:

Over the past five years, the total assets of the banking system – and here I include building societies and credit unions – have almost doubled but prudential indicators confirm that the system has, throughout, remained in very sound condition. Profitability has been strong, impaired assets are at cyclical lows, the system is well capitalised and, broadly speaking, risks are being prudently managed.

Faced with a slowdown in housing lending and strong competitive pressures on margins, banks and otherdeposit-taking institutions will obviously be looking elsewhere to generate returns... In the current environment, there is no room for complacency in lending practices.

Complacency can take a number of forms, and we in APRA have been seeing some more than we would wish. One sign is the setting of ambitious business plans and growth targets for housing lending as if recent years’ achievements can be readily repeated. Myopia, in other words. With growth in housing credit as a whole slowing, such targets can only be met by winning market share from competitors. Institutions will put themselves under undesirable pressure to dilute credit standards or to mis-price for risks if they seek to attain the unattainable.

Another sign is slippages in basic lending practices - in “bread and butter” banking. In housing lending, they cover such matters as:

• failure to independently verify customer data, particularly debt servicing ability, where loans are originated via mortgage brokers and other third-party channels;
• the use of various informal means of property valuation for loans on which lenders would traditionally require formal valuations;
• inadequate information systems which cannot capture electronically vital loan information for management and for reporting to APRA; and
• unsatisfactory error rates in compliance with the terms and conditions of lenders’ mortgage insurance.

The need to maintain robust credit assessment processes in household lending is reinforced by the reality that debt servicing burdens of households are now at record levels and that banks are no longer relying on conservative rules of thumb when assessing a borrower’s capacity to repay debt.

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