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Legislation

Members of the mortgage broking industry are bound to certain legislative requirements. This document provides you with information regarding those requirements and links to further information.

Legislative requirements in the mortgage broking industry

The role of the Finance Broker is to gather and give quality information to clients on credit options that meet the compliance of legislative requirements and Codes of Conduct. The following are some of the regulations that apply to the Financial Services Industry and Mortgage Broking Process.

Uniform Consumer Credit Code (1993) (UCCC)

The purpose of the UCCC was developed in response to business and consumer concerns as a national initiative to standardise credit practice in Australia. The UCCC applies to all states and territories.

The provisions of the UCCC applies to credit providers where the customers are individuals i.e. borrowers or guarantors or residential strata corporations where the purpose of the loan facility is wholly and predominantly for personal, domestic or household purposes. Also known as regulated loans.

The purpose of the UCCC is to provide retail borrowing clients with rights and protection during the time of the loan application and during the term of the loan.

Any credit arrangement made between a borrower and a lender must be in the form of a written contract. Before the client enters a contract, often the broker/lender must provide the client with a contract statement i.e. pre-contractual statement, Verix – Personalised Finance Report and Letter of Appointment disclosing mandatory details such as:

  • The credit providers name
  • To whom the credit is to be provided
  • The amount of credit to be provided
  • The annual percentage rates or rates
  • Details of interest free periods
  • Any credit fees and charges
  • amount of repayments due under the loan
  • Privacy Statement Policy
  • Commission disclosure
  • Lender comparison rate table
  • Default rate of interest

The UCCC does not apply to:

  • loans for investment purposes
  • oans for business/corporate purposes
  • credit that is for a period of 62 days or less

Also known as unregulated loans.

Failure to comply with the UCCC can lead to civil penalties of up to $500,000 and up to $10,000,000 for companies and also criminal charges.

Further informaiton on the Uniform Consumer Credit Code can be obtained by visiting www.creditcode.gov.au

Mortgage Industry Association of Australia (MIAA) and The Finance Brokers Association of Australia (FBAA)

The aim of the MIAA and FBAA is to ensure Finance Managers and Brokers act in good faith to clients and promote ethical and fair business practices to benefit clients.

The MIAA and FBAA Code of Conduct provide that brokers:

  • Act in good faith towards the client
  • Avoid conflicts of interest
  • Comply with all relevant legislation
  • Seek appropriate finance options for the client
  • Promptly process applications
  • Keep the client adequately informed of the loan process
  • Disclose all fees, charges and commissions
  • Inform the client about appropriate complaints mechanisms

Further information on the MIAA and FBAA can be obtained by visiting www.miaa.com.au, www.fbaa.com.au or www.financebrokers.com.au

Finance Brokers Control Act (1975) (WA)

The Finance Brokers Control Act (Act) only applies in Western Australia. The Act addresses ethical issues likely to confront brokers.Some examples of the ethical standards and codes of conduct of a Mortgage Broker under this Act are their:

  • Duty to Parties/Borrowers i.e. confidentiality and disclosure, honesty and competency, no deceptive or misleading behaviour, act in best interest of the clients and before a loan is made the finance broker must provide loan details and details of the broker, borrower/guarantors in writing, disclosure of products fees and charges, as well as commission and comparison rate schedules.
  • Duty to Lenders i.e. information on the property offered as security, choice on the appointment of independent valuers, accurate and up-to-date personal details of borrowers/guarantors including assets and liabilities, relevant documents such as payslips, bank statements, bankruptcy, loan contracts are executed and properly witnessed.

The Banking Code of Practice

The Banking Code of Practice was established to improve the quality of service to banking clients including:

  • Ensuring bank employees brief clients about their rights in relation to banking products
  • Dealing appropriately with disabled clients and others with special needs
  • Providing adequate training for all staff
  • Appropriate disclosure in terms of access to documents and fees and charges of credit products

Further information o the Banking Code of Practice can be obtained by visiting www.bankers.asn.au

The Financial Services Reform Act (FSRA)

The Financial Services Reform Act governs regulatory regime for Finance Brokers for all financial products, licensing, disclosure to clients on the risks, fees and charges of products. Its main purpose is to reform and consolidate regulation of the financial services sector covering most financial services and products.

As at the end of March 2004 a person is prohibited from carrying on a financial services business unless they have an Australian Financial Services license (AFS) in order to provide advice on financial products.

The aim of the FSRA is to provide a consistent and comprehensive disclosure regime for the investment products of the Financial Services Industry. Until the FSRA, different licensing requirements were governed by different pieces of legislation. However, under the FSRA, Finance Brokers of financial services are now subject to the same licensing regime.

The Act covers the following issues:

  • Clarifying policy statements
  • Licensing procedures
  • Required training and accreditation
  • Financial services guide
  • Product disclosure statements
  • Statement of advice
  • Cooling off period
  • Clarifying the concept of advice

Corporations Act (2001)

The aim of the Corporations Act is for the Finance Broker to:

  • Act in good faith towards the client.
  • Be able to demonstrate a depth of knowledge about clients objectives, financial position and particular needs
  • Thorough understanding of appropriate finance options available to recommend to the client.