You asked for it!
In last month’s edition of ‘Better Outcomes’ we shared the 10 most commonly asked questions of us by Finance Brokers, Aggregators and Lenders. There is so much unnecessary confusion around NCCP and Responsible Lending guidelines and one of our primary objectives is to educate, support and empower Finance Brokers, from an independent perspective, in such matters.
Following our November newsletter, we received quite a bit of feedback and this included asking for our view on the top question recently asked of us:
“How much verification of what a customer tells me is enough?”
You asked for it, so here is our view…
Firstly, we strongly believe that every Australian Credit Licence holder must have a thorough and repetitious process when it comes to assessing loan suitability and this includes verification procedures. In fact, ASIC mandates that every Licence holder must have a customised, documented and adhered to Responsible Lending policy which encompasses such matters.
In response to the above question, ASIC refers to the concept of scalability. ASIC expects every credit assistance provider to carefully consider the specific circumstances of the consumer and the loan you are considering suggesting.
A key query ASIC asks of each credit assistance provider and you should always ask of yourself is “What is the potential impact upon this consumer if they enter into an unsuitable loan?”
Your primary job as a credit assistance provider is to ensure that the customer does not enter into a loan that is unsuitable. Therefore, if the potential negative impact is significant then extra inquiry and verification is needed.
Additionally, RG209 specifies that additional verification be sought when the information provided is inconsistent with other information you hold or know of and where the information provided is outside a standard range for like customers.
At SalesKey, we believe that for you to comply to ASIC standards you cannot simply rely on what the customer tells you. Equally so, you cannot simply rely on the lender to do the verification on your behalf. It’s your responsibility as a credit assistance provider!
To comply with regulation and be a ‘customer-first’ broker, here are some of our recommended steps:
- Collect granular detail of declared living expenses and always apply careful scrutiny.
- If you are concerned with what has been declared, collect bank statements.
- If you have collected bank statements, you must use them and assess observed spending patterns against what has been advised.
- If the observed amount is higher than that declared, use that.
- Whilst not blindly relying on a minimum living expense benchmark, every broker should have their own internally-followed minimum guide which is used as your ‘safety net’.
- There needs to be a very strong & well documented reason why you would proceed based on declared living expenses less than your minimum benchmark.
- Obtaining a credit report is an important part of your verification process.
- A credit report can tell you a lot and help to comply with some of ASIC’s analysis expectations.
- For example, a credit report will allow you to see the consumer’s current debt position, their recent level of credit activity, any payday lender obligations, their credit history and can also be a useful tool to validate declared residential details.
- You should always verify employment and income details whether via payslip, employer reference and/or bank statements.
- When you collect such evidence, make sure you check these carefully.
- For example, does the YTD amount on the payslips seem reasonable, does the ABN listed match the government register, or are the bank statement fonts and running totals consistent?
So, getting back to our question at hand…
If you haven’t verified enough information to make the decision that the loan you are suggesting is not unsuitable then you’ve failed your role as a Finance Broker.
Also, don’t forget to make lots of notes and always ensure a detailed preliminary assessment is conducted and stored on file.
We encourage each of you to empower yourself with greater knowledge, but also obtain greater support. We’d love to discuss any of your concerns or questions and help to create a Better Outcome for you and your business.
Call us on 1800 954 488 or email [email protected] for more information.