Bank Statements: Their value and your obligations

Banks statements are currently a hot topic within the lending and Finance broking environment, especially now that ASIC have reinforced the importance of checking them in their latest update from early 2020. This update reinforces the responsibility on the broker/lender to apply their own ‘reasonable’ judgement.

It also further emphasises the need to utilise documents and tools at hand to confirm what has been disclosed by a consumer. For example, if the broker has bank statements provided; these must be analysed and compared to the details declared by the consumer. If this raises discrepancies, extra inquiry and validation is needed.

Regardless of regulatory obligations, we believe banks statements are a critically important tool.  They can be used to verify declared information by your client to check and prove its accuracy, making sure you are doing a correct credit assessment and providing accurate information.
You can use them to:

  1. Validate declared living expenses,
  2. Validate debts,
  3. Alleviate (or discover) concerns for high risk consumers, and
  4. Verify income.

In summary, understanding the importance of bank statements is important and by using them as a standard part of your process you’ll ultimately provide great service to your clients.

Validation of monthly expenses via use of bank statements
Recently, we’ve been asked on numerous occasions for some tips re: using bank statements. Therefore, the following content is shared for you…

  • Even if a lender is happy to proceed without bank statements, a broker still has their own responsible lending obligations and MUST analyse bank statements if they’ve been collected.
  • Adding up the most recent month’s living expenses (from the bank statement) and comparing the amount to what has been declared is a quick and easy check to make and will save you from unexpected, last-minute issues with the lender and/or client. Generally, you can exclude:
    • – interbank transfers,
    • – cash outs,
    • – one off large purchase such as furniture, etc. and
    • – loan or rent payments.
  • We believe a 10% difference between declared expenses and the bank statement calculation is reasonable and, all else being equal, you can proceed without further investigation.
  • When the discrepancy is larger than 10%, our recommendation is to always investigate further and certainly make detailed notes explaining any such difference that remains post analysis.
  • If there are large differences between the expenditure on a bank statement compared to that declared, it’s ok to use the lower amount if there is a valid explanation. For example:
    • – Christmas period,
    • – Gifts,
    • – Holidays, and
    • – Temporary house guests.
  • When considering debt validation, keep an eye out for familiar names such as AFTERPAY, TOYOTA, VISA, ANZ, etc. to identify potentially non-disclosed credit. If you don’t pick it up, the lender probably will, and it wont reflect well on you as the broker.
  • Always take note of overdrawn fees, bounced debits or additional liabilities not declared. Again, you now need to ask more questions and diary note what subsequently occurs. This can flag a client as potentially high risk which means more careful assessment.
  • Look for regular large salary payments over the months of statements provided or familiar names such as the name of their employer. An average monthly amount can then be calculated and compared to what’s been told to you.
  • Many online bank statement providers, such as Illion, providing expense summaries. These generally break down average costs of living expenses and can be quickly used as a comparison to declared expenses. When available, this can alleviate the need to table most recent expenses manually.
  • When in doubt, WRITE DETAILED FILE NOTES

What makes a good explanatory file note?
Whether the loan is a simple one or for a sub-prime client that is difficult to ‘get set’ ensure the process you undertake to arrange a loan is clearly demonstrated. There are numerous benefits in doing this and the ‘sharp operators’ understand these as follows:

  • Structured file notes which explain the client discovery process illustrate the inquiries made and detail the verification steps taken to assess loan suitability help to comply with ASIC’s Responsible Lending guidelines.
  • Detailed file notes provide evidence of a thorough and repetitious process which lenders and the regulator value.
  • Clearly identified and easily accessed file notes help with future client engagement.
  • From a compliance perspective, file notes are particularly important when the question of loan suitability is potentially questioned in the future and they can also be used to assist should future customer complaint arise.

Given the countless client conversations had, no broker could possibly recall all details per each interaction. Help yourself by taking notes, label them clearly and even better use a system that enables you to do this in a convenient manner.

We hope the above details help you and your team. As you know, we founded SalesKey with an objective to share our knowledge of Finance, Lending, Finance Broking, and business management and in turn guide businesses through the maze of compliance requirements. It’s our pleasure to do so!

Whether it’s a review of your ACL Obligations, internal processes, NCCP adherence, sales maximisation, systems, or your organisational structure; we are well placed to help any participant within the Financial Services space. For an obligation-free discussion, we’d love to hear from you on 1800 954 488.

Stay safe everyone!

Scott and Darren.