On Thursday 6 February, the Financial Sector Reform Bill passed both houses; after the 3rd reading.
The Bill is in direct response to some of Commission Hayne’s recommendations re: The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Act and its details will apply from 1 July 2020
It amends the National Consumer Credit Protection Act to:
a) Require Mortgage Brokers to act in the best interest of consumers, and
b) Address conflicted remuneration for Mortgage Brokers.
As part of the final release, Senator Richard Colbeck advised; “Schedule 3 of the bill introduces a best interests duty for mortgage brokers that will ensure that consumers interests are prioritised when a mortgage broker provides credit assistance, as regulated by the National Consumer Credit Protection Act 2009”.
He went on to say, “The government is also reforming mortgage broker remuneration, and the bill provides for a regulation making power to this end. The regulations will require the value of upfront commissions to be linked to the amount drawn down by borrowers instead of the loan amount, ban campaign and volume-based commissions and payments, and cap soft dollar benefits”.
As for the definition of each key component of the bill we include the following for your information:
Best Interest Duty:
When a mortgage broker deals with a consumer in relation to mortgages, the broker must act in the best interests of the consumer and not only in relation to the mortgage but also in relation to any other credit contracts for which they provide credit assistance.
This goes beyond current responsible lending obligations.For example, even if a home loan product is ‘not unsuitable’, recommending it to the consumer might not be in the consumer’s best interests.
Credit representatives must give priority to the consumer’s interests if they know there is a conflict between the interests of the consumer and their own interests. To this point, all ACL holders must take reasonable steps to ensure that the credit representative complies with the ban on accepting conflicted remuneration.
As for with all new legislation, the interpretation of how it is applied within our industry will be carefully scrutinised. ASIC has yet to publish their guidance and of particular interest will be how Lenders also apply it, including the scope across multiple asset classes.
SalesKey will monitor closely and will keep all our retained service clients up to date on developments as they arise.
For any inquiries, questions or simply a general discussion of the many services SalesKey provides to generate Better Outcomes in the consumer finance marketplace, please refer to our website or call us on 1800 954 488.
Scott and Darren.