Chapter 3

Legislative
and Regulatory
Framework

102
 Legislation
 Mortgage broking activities are regulated by
various kinds of legislation in Australia:
– National Credit Code
– ASICs regulations
– Anti-money laundering legislation
– Privacy Act 1988
– Code of Conducts of industrial associations

103
 National Credit Code
 The reform package was introduced into the
Parliament in June, 2009. The package includes
various pieces of legislation, called as whole ‘The
National Consumer Credit Protection Reform
Package’.

 The reform package initially aimed to transfer

all consumer credit regulations to the
Commonwealth from the States and
Territories to achieve a standard industry
level code of practice. The package is to be
implemented within two phases.
104
 National Credit Code…
 The first phase was enacted in 2009.

 ASIC has become the sole, national regulator for

consumer credit lending and finance broking. ASICs
power has been extended as the sole regulator of the
new national credit framework with enhanced policing
scope.

 The National Consumer Credit Protection

Reform Package aims to amend the previous
State-based Uniform Consumer Credit Code
(UCCC).

105
 National Credit Code…
 The UCCC, which had been in place since the early
1990s, was developed in response to business and
consumer concerns as a national initiative to
standardise credit practice in Australia.
– UCCC was ‘national’ administration and was the
responsibility of eight different State and Territory
Governments.

 Like the previous UCCC legislation, the National

Credit Code is based on the principles of truth-
in-lending, allowing borrowers to make
informed choices when purchasing credit.

106
 National Credit Code…
 The new code largely replicates the previous State-
based UCCC, it also regulates a wider range of credit
products including:
– credit cards
– investment loans
– hire purchase agreements
– personal and home loans
– mortgages and guarantees

 The National Credit Code has introduced

change in the following areas by creating:
1. a comprehensive licensing regime for all
providers of consumer credit and services;
107
 National Credit Code…
2. responsible lending conduct requirements on
licensees that are not unsuitable for the consumer’s
needs and that the consumer has the capacity to repay
3. improved sanctions and enhanced enforcement
powers for ASIC as the government regulator
4. greater consumer protection through court
arrangements, remedies for consumers and penalties
for misconduct
5. an expanded scope for the National Credit
Code to include credit provided to purchase,
renovate, improve or refinance a residential
investment property;

108
 National Credit Code…
 The National Credit Code mainly deals with consumer
lending that use the main part of the loan proceeds for
personal, domestic or household purposes

 The code extends to credit provided for the purchase,

renovation or improvement of a residential property
for investment purposes.

 Residency status of the debtor does not affect

whether or not the code applies.

109
 National Credit Code…
 The application form of the loan must include a
declaration if the loan is to be used predominantly for
business purposes.

 If more than 50% of a loan’s proceeds are for business

purposes, the credit will not be subject to the code.
– Vital that the purpose of the loan is determined
beyond any doubt.

 A simple, written declaration from the

borrower stating that the loan is for business
or investment purposes does not have
conclusive evidentiary value.
110
 Second Phase
of Reform Package
 The second phase of consumer credit reforms has begun
and is continuing. The changes already enacted include:
– the banning of exit fees on home loans for contracts
entered into after 1 July 2011;
– the introduction of one-page ‘Key Facts Sheet’ for home
loans and credit cards;
– the banning of unsolicited credit limit increase
invitations without obtaining the express consent
of the consumer;
– the banning of over-the-limit fees on credit cards,
unless the fees are expressly requested by the consumer;
111
 Second Phase
of Reform Package…
– that credit card providers first allocate payments to the part
of the closing balance shown in the last account statement
to which the highest rate of interest applies; and
– that all credit providers clearly warn consumers on their
account statements about the consequences of only making
minimum repayments.

 Further changes are contained in the Consumer

Credit Legislation Amendment (Enhancements)
Bill 2012 (Enhancements Bill).
– “Regulatory Guide 203 Do I need an Australian
credit licence?” has also be updated.
112
 National Credit Code
Regulation of Mortgage
Broking Activities
 All actions of the parties involved in a mortgage lending
process must comply with the NCCs provisions.

 These parties will include all employees of credit

providers such as directors, managers, brokers,
contractors, mobile lenders, satellite offices.

 The actions of all intermediaries will be deemed

to be the actions of the actual credit provider.

113
 National Credit Code
Regulation of Mortgage
Broking Activities…
 In case of a breach, the courts will determine which party
bears liability for the breach.
 These parties may be held personally liable for a breach
of the National Credit Code under the following sections:
– Relations and correspondence with prospective borrowers
– Relations with borrowers throughout the loan term
– Prohibition of the conflict of interest
– Misconduct and unjust transactions
– Documentation, reporting and disclosure
requirements
– Liabilities and penalties under the code
114
 Relations with
Prospective Borrowers
 Mortgage brokers must not make false claims or mis-
leading representations about specifications or features of a
credit product to induce their clients to enter into a contract,
mortgage or guarantee.
 Mortgage brokers are not allowed to provide taxation or
financial advice.
 Mortgage brokers should explain to their clients
that the interest rates quoted or stated in the offer
documents are indicative representations.
 These rates are subject to change as negotiations
occur.
 The actual rates will be determined on settlement day.
115
 Cold Calling
 The National Credit Code prohibits visiting a
customer’s home without having a prior appointment.
 Consumers in their own home are particularly
vulnerable to making uninformed decisions due to a
variety of factors, including:
– the inability to walk away from a sale;
– an inherent politeness towards a person who is a
guest in their own home;
– the nature of the sales staff who are often trained
to exploit this sense of obligation and who may
refuse to leave until the sale is complete; and
– logistical difficulties in comparing prices, often
resulting in the consumer committing themselves to
paying excessive fees.
116
 Relations with Borrowers
throughout the Loan Term
 Customer correspondence is strictly regulated under the
National Credit Code.
 Interest rates changes will affect the minimum repayment
amount.
 Lenders must notify their customers about the changes
in interest rates at least 20 days before the new
repayment amount becomes effective.
 Statement of accounts and statement of pay-out
figure should be provided by lenders within seven
days of a borrower’s request.
117
 Relations with Borrowers
throughout the Loan Term…

 Statement of accounts should also be sent on a regular

basis every six months for term loans and every month
for transaction accounts.
 The code requires the notifications being sent by lenders
to all borrowers whereby there are more than two or
more borrowers in a credit arrangement.
 If a debtor makes an application under the hardship
provisions of the code, the credit provider must
reply within 21 days stating whether or not the
credit provider agrees with the changes requested.
118
 Relations with Borrowers
throughout the Loan Term…

 If the credit provider does not agree to the changes, the

notice must state the name of the credit provider’s
External Dispute Resolution (EDR) Scheme and the
debtor’s rights under that scheme.

 Hardship provisions of the code under which

consumers can request a change to certain terms
of their credit contract apply to loans up to
$500,000 or any higher amount prescribed by
the regulations.
119
 Prohibition
of the Conflict of Interest
 The prevalence of commission-based remuneration
creates the possibility of conflicts of interest between
the interests of the broker and their client.
 A mortgage broker is expected to act as an intermediary
between a client and lending institution to negotiate
the approval of a loan, in return for a commission.
 The broker’s principle function is to:
– find suitable lenders that offer loan products to
match the client’s needs
– refer the client’s loan application to a lender
– obtain approval for the loan
121
 Prohibition
of the Conflict of Interest…
 The prevalence of commission-based remuneration
creates the potential for conflicts of interest when brokers
try to maximise their incomes to the detriment of their
clients, who are seeking the best and cheapest brokers.
– As a professional, a mortgage broker should always
act in the best interests of their clients.

 Some of the broker firms, seek to mitigate the

effect of commissions on the choice of product
by rebating part of the payment to the borrower,
or by paying fixed salaries to their employee brokers.
122
 Prohibition
of the Conflict of Interest…
 Similarly, the aggregators generally have commission-
splitting arrangements with individual brokers. These
may vary with the identity of the lender and/or the
volume of business placed.

 To the extent that broker remuneration is based purely

on volume (rather than the identity of the lenders
or the value of commissions offered), this may
remove conflicts of interest that might otherwise
arise in relation to the advice being offered.
123
 Misconduct
and Unjust Transactions
 All professionals working in the mortgage industry have
a duty of care to ensure that they conduct their business
activities within the regulatory framework.
 It is the mortgage broker’s responsibility that borrowers
and their guarantors are fully informed about all the
circumstances of the contract.
 Mortgage brokers must ensure that they have
undertaken all reasonable enquiries to collect
correct and complete information from their
clients and they have analysed these appropriately.
124
 Misconduct
and Unjust Transactions…
 The courts may decide that a credit contract, mortgage or
guarantee is invalid due to the credit providers’ or its
representatives’ misconduct or unjust behaviour.
 The code states that unjust behaviour may include
unconscionable, harsh or oppressive behaviour.
 The court may invalidate the contract due to the
vulnerabilities of the borrowers or the guarantors.
– The court will definitely consider the age, mental
and physical condition of the parties involved in the
contract.
125
 Documentation, Reporting
& Disclosure Requirements
 Both the National Credit Code and the Corporations Act
2001 prohibit secret commissions between agents and
principals.
 Both Commonwealth and state criminal codes state that
the corrupt payment or receipt of commissions is a
criminal offence and penalties apply.
 Penalties may also apply where commissions
are not disclosed in relation to commercial
transactions.

126
 Documentation, Reporting
& Disclosure Requirements…

 To comply with the National Credit Code, brokers must

satisfy the disclosure and documentation requirements,
meaning:
– making sure that all the relevant information has been
discussed
– all the necessary documents have been completed
and collected from borrowers and guarantors
– documents have been filed appropriately.

 The loan agreement is a written contract that

is signed by all the parties privy to the contract.
127
 Documentation, Reporting
& Disclosure Requirements…

 This contract sets out the terms and conditions of the

product.

 The first page of the contract will include a summary

table about the key details.

 Interest rates must be expressed as indicative and

as an annual percentage rate.

 The contract may specify 30-years or shorter

maturity for the loan, monthly or more frequent
instalments and customised repayment amounts.
128
 Documentation, Reporting
& Disclosure Requirements…

 The code sets specific disclosure requirements about all

the fees, charges and any sort of commissions arising
from the contract.

 Throughout the credit relationship, some amendments

can be made regarding the terms of the contract.

 Major amendments include changing the loan

type, nature of the credit (domestic/business),
loan amount, primary security, collateral and
any change in the parties to the contract.
129
 Liabilities and Penalties
under the Code
 Breaches of the National Credit Code are subject to both
civil and criminal penalties.
 Unjust transactions or unfair contracts may lead to
contracts being invalid and the requirement to be re-
drafted. The following actions are in breach of the code:
– making false or misleading representations.
– arriving at a borrower’s home without an appointment.
– harassment of the client.
– failing to notify a borrower of contractual changes.
– failing to notify a borrower of interest rate changes.
– failing to notify a borrower of changes to fees and charges.
130
 Liabilities and Penalties
under the Code…

 ASIC may suspend or cancel a licensee’s licence if:

– the person is insolvent;
– the person is convicted of serious fraud; or
– the person is incapable of managing his or her affairs because
of physical or mental incapacity; or
– a prescribed state or territory order is in force against
the person; or
– the licensee has contravened the obligation under
the code.

131
 Comparison Rates
 A comparison rate is a tool to help consumers identify
the true cost of a loan.
 It is a rate which includes both the interest rate and
fees and charges relating to a loan, reduced to a single
percentage figure.
 For example, a bank’s advertised interest rate may be
2.84% and its comparison rate from 2.71%. (2020)

 As it includes all kinds of non-interest fees and

charges, the prospective borrower would know
exactly how much the loan would cost to them.

132
 Comparison Rates…
 Comparison rates will apply to the credits which is
wholly or mainly for personal, domestic or household
purposes or has fixed term credit that is, credit that
must be repaid within a specified time period.

 A home loan with a term of 25 years, and a car loan

with a term of 5 years are examples of fixed term
credit.

 In contrast, credit cards, which do not have to

be repaid within a particular time period, are
examples of continuing credit.

133
 Comparison Rates…
 According to the code, a comparison rate must
be included in any advertisement for fixed-term
consumer credit which contains an interest rate.
 Comparison rates are calculated in accordance with
a standard formula, which takes into account the:
– amount of the loan;
– term of the loan;
– re-payment frequency;
– interest rate, and
– fees and charges connected with the loan.

134
 Comparison Rates…
 There are exceptions for certain government charges
such as:
– the fees and charges connected with the loan (except
for government charges, such as stamp duty or
mortgage registration fees;
– fees and charges which may or may not be charged,
because they depend on some event which may or
may not occur, e.g., fees for early re-payment or
re-draw fees, and
– fees and charges which are not ascertainable
at the time the comparison rate is provided.

135
 Comparison Rates…
 The comparison rate does not include:
– government and statutory fees, although these are
standard across all lenders and loans.
– lender mortgage insurance or valuation charges.
– fee waivers or any discounts that your lender might
apply to the loan.
– Event-based charges, like re-draw fees or
early re-payment fees.

136
 Responsible Lending
Conduct obligations
 According to the National Credit Act, a credit contract
will be unsuitable if the:
‒ consumer will be unable to meet the repayments; or
‒ consumer can make the payments under substantial
hardship; or
‒ credit arrangements do not meet consumer’s
requirements or objectives.

 Mortgage brokers and lenders cannot:

‒ assist their clients to enter into, or increase the
limit on an unsuitable credit contract; or
‒ suggest that their client remains in an unsuitable
credit contract.
137
 Responsible Lending
Conduct obligations…
 Mortgage brokers have three main responsibilities with
respect to responsible lending requirements:
‒ making reasonable inquiries about the consumer;
‒ making an assessment about whether the proposed
credit contract is not unsuitable for the consumer;
‒ providing the following disclosure documents during
the credit process:
• A written assessment that the credit would
be unsuitable, if requested.
• Credit guide.
• Quote for providing assistance.
• Credit proposal disclosure document.
138
 Making reasonable
inquiries about a Consumer
 Mortgage brokers must make reasonable inquiries about
the consumer to make sure that the proposed home loan
cannot be deemed unsuitable, by consideration of:
‒ the scale of the credit arrangement
‒ the potential impact of the credit arrangement on the
consumer
‒ consumer entered into an unsuitable credit contract
‒ the consumer’s capacity under the credit contract
‒ if the consumer is new or an existing customer of
the credit provider.

139
 Making reasonable
inquiries about a Consumer…
 The nature of the reasonable inquiries necessary and the
reasonable steps required to verify the information will
also depend on the nature of the service being provided
to the consumer.
 It can be said that mortgage brokers are expected
to make more detailed inquiries when the credit
product is complex.

 For home loans, detailed inquiries need to be

made because the amount is usually significant
and if the client’s capacity is not appropriate it
may result in substantial hardship.
140
 Making inquiries into
Consumer’s Finances
 Reasonable inquiries must include proper analysis of a
consumer’s financial situation.
‒ The legislation does not prescribe which specific inquiries
have to be made with regard to financial circumstances.

 ASIC guidelines list the following issues:

‒ current income and benefits
‒ fixed and variable expenses
‒ value and nature of assets and liabilities
‒ extent to which existing debts will be repaid
from the credit
‒ credit history
‒ consumer’s other circumstances
‒ any significant foreseeable changes
141
 Making inquiries into
Consumer’s Finances…
 Based on the inquiries into the consumer’s financial
situation and the steps taken to verify this information,
the broker will have to decide whether the consumer
has the capacity to repay the loan.

 Generally the National Credit Act presumes that

a consumer should be able to meet the financial
obligations of the credit contract from their
income, not equity in an asset
‒ Reverse mortgages and bridging loans may
be exceptions to this position.

142
 Consumer’s Requirements
and Objectives
 Mortgage brokers should also assess whether the credit
contract is ‘fit for purpose’:
‒ whether it meets the consumer’s requirements

 A home loan product must be appropriate for the

consumer’s requirements and objectives, this includes:
‒ whether it meets the consumer’s requirements
‒ an appropriate credit limit is offered to the
consumer
‒ an appropriate maturity is arranged
‒ the reason for the credit product is justified
‒ the benefits of the credit product are detailed
143
 Consumer’s Requirements
and Objectives…
‒ appropriate features and flexibilities are offered to
consumer
‒ the costing structure of the credit product and its
associated risks are well understood by consumer
‒ the consumer’s stated objectives in obtaining the credit
are met
‒ the nature of the credit requested by the consumer
is not deemed unsuitable
‒ if the consumer is refinancing, the benefit of
the new credit product is justified

144
Having adequate Processes
and Documentation
 Internal processes and procedures must address the
consumer’s capacity to repay the credit contract and
measure the credit risk of the consumer.

 The process must also include the reasonable steps for

the verification of consumer information.

 Both lenders and brokers share the responsibility

for the verification of the information provided
by a consumer.
‒ Compared to the lender’s, a mortgage broker’s
responsibility is limited because they may not have
access to all of the information that a credit provider does.
145
 Adequate Processes
and Documentation…
 A mortgage broker should at least refer to the following
documents when verifying a consumer’s financial
situation:
‒ recent payroll receipts/payslips and confirmation
of employment for PAYG employees
‒ recent income tax returns, a statement from their
accountant and Business Activity Statements for
self-employed persons

 Additional inquiries would need to be made

if the consumer provides information that is
inconsistent.
146
 Making preliminary
Assessment
 The preliminary assessment must be made on whether
the proposed credit contract is unsuitable for the
consumer.

 Mortgage brokers must reasonably make sure that:

‒ the consumer would be able to meet their financial
obligations without incurring substantial hardship, and
‒ the credit product meets the consumer’s objectives

 Additional analysis is required where a credit

assistance provider engages in switching and
refinancing activities.
147
 Making preliminary
assessment…
 Additional analysis is required where a credit assistance
provider engages in switching and refinancing
activities.

 A higher level of inquiries will be required if the

consumer is refinancing.

 Refinancing often suggests they are either having

trouble meeting their repayments or they are in
arrears on their existing contract.

 If a new credit contract has the same repayments,

on face value it will be unsuitable.
148
 Documents given
during the Credit Process
 Credit Guide
– Must be in writing and include all statutory requirements.

 Quote for providing assistance.

– The quote must be in writing
– Must include information about the credit assistance
and other services,
– Whether the maximum amount, or any other
amount, will be payable by the consumer for
credit assistance and other services,
– State whether the maximum amount, or any other
amount, will be payable to the licensee if a credit
contract is not entered or a credit limit is not increased.
149
 Documents given
during the Credit Process…
 Credit proposal disclosure document must contain the
following information:
– the total amount of any fees or charges that the consumer
will be liable to pay.
– reasonable estimates of the total amount of any
commissions the credit representative is likely
to receive and the method used for working it out.
– reasonable estimates of the total amounts of
any fees or charges.
– if the credit is to be applied to any of the
amounts, a reasonable estimate of the likely
amount of credit that will be available to the
consumer after they are paid.
150
 Documents given
during the Credit Process…
 Written preliminary or final assessment when the
credit contract is unsuitable:
– If requested by the consumer, mortgage brokers must
provide the assessment that the credit contract is
unsuitable and may refer to:
• the consumer’s requirements and objectives
• reasonable inquiries carried out by mortgage broker
• the consumer’s capacity to repay.
– The consumer should be given the opportunity
to check this information to ensure that any
inaccurate information is corrected.
151
 Unconscionable Conduct
 Defined as unfair or unreasonable conduct in business
transactions that goes against good conscience.
 The exact meaning of ‘unconscionable conduct’ is not
defined in the ASIC Act.
 The courts determine whether there is a contravention
or not, by considering several factors including
the bargaining positions of the supplier and
consumer.
 For a mortgage broker, it is important that
the client could understand all the documents
relating to the credit product.
152
 Unconscionable Conduct…
 In order to avoid committing unconscionable
conduct, a mortgage broker should:
– use plain, uncomplicated language when servicing
and advertising to a wide range of consumers;
– avoid harsh or oppressive terms in agreements or
contracts.
• If a dispute arises, these terms cannot be relied
on, and any attempt to enforce them may be
considered unconscionable;

153
Unconscionable Conduct…
– clearly set out all key terms of the agreement
by ensuring that clients are made aware of
key terms and conditions in the credit product.
• A key term buried at the back of a long contract or
hidden in fine print, may not be enforceable.

– make full and frank disclosure, which means

ensuring their client is aware of and understands
the key terms of the agreement.
• Should ensure the customer understands
any unusual or important terms and any
possible consequences they may have.

154
Unconscionable Conduct…
– avoid high-pressure sales tactics, in fact there are
limits on how far they can go to make a sale.
• Conduct that is appropriate for some consumers may
threaten or intimidate others.

– have an effective complaint-handling structure

by ensuring their business has a system which
allows customers to easily raise disputes and
have them resolved.

– be prepared to negotiate and set aside the

contract if required.

155
 Misleading
and Deceptive Conduct
 National Credit Code and the ASIC Act explicitly
prohibits misleading and deceptive conduct in the
financial services industry.
 Any advertisement, promotion, quotation, statement or
other representation made by a mortgage broker must not
create a misleading impression in client’s mind
otherwise the conduct is likely to breach the Act.
– These misleading impressions might be related to fees,
charges, special features, conditions or any other
specifications of the credit product.
156
 Competition
and Consumer Act 2010
 The Competition and Consumer Act 2010 (CC Act) is
administered by the Australian Competition and
Consumer Commission (ACCC) and applies to the
conduct of corporations, their employees, agents and
officers.

 Apart from misleading, deception and unconscionable

conduct, the CC Act also prohibits some other
certain actions such as collusion, restrictive trade
practices and exclusive dealing.
157
 Competition
and Consumer Act 2010…

 These actions are deemed in the CC Act to be anti-

competitive. Where a borrower, mortgagor, guarantor or
any other person has suffered a loss as a result of a
breach of the CC Act, the credit provider may be ordered
to compensate that person or entity.

158
 Licensing requirements
for Mortgage Brokers
 Financial Services Regulations under the Corporations
Act 2001 states that all providers of financial products as
defined under the Corporations Act 2001 must hold an
Australian Financial Services License (AFSL).

 Mortgage brokers do not require an AFSL and

are not required to be appointed as ‘authorised
representatives’ of an AFSL holder unless
they also distribute financial products.

159
 Licensing requirements
for Mortgage Brokers…
 Although offset accounts are defined as financial
products in the Corporations Act 2001, mortgage
industry representations to ASIC resulted in offset
accounts being exempted from the regime.
– ASIC considers these products to be incidental to
a housing loan.

 ASIC granted conditional relief if the financial

services providers belong to an ASIC-approved
external dispute resolution scheme (EDR scheme).
160
 Licensing requirements
for Mortgage Brokers…
 Lenders are liable to the borrower for the conduct of
brokers only in extremely limited circumstances.
 The NCC licensing regime ensures individual brokers
can be easily traced to ensure appropriate conduct.
 The credit activities that the licensee is authorised to
engage in are those specified in a condition of the
licence the licensee is authorised to engage in.
– Brokers may apply for their own credit licence
or they may be an authorised credit representative
of a credit licence holder.
161
 Protection of Privacy
 The Privacy Act 1988 regulates ‘information privacy’
in Australia.
 The Office of the Privacy Commissioner administers
the Act.
 The Australian Federal Privacy Act 1988 authorised
the implementation of the principles developed by the
Organisation for Economic Cooperation and
Development (OECD) in 1980.
 The Privacy Act 1988 was extended in
December of 2000 via the Privacy Amendment
(Private Sector) Act to include most private
organizations.
162
 Protection of Privacy…
 The Privacy Act 1988 was further extended by the
Privacy Amendment (Enhancing Privacy Protection)
Act 2012 setting out how organizations should use,
keep and disclose personal information.
 When preparing a loan application, mortgage brokers
collect private information of their clients.
 The main principles of the Act cover the following
areas:
– manner and purpose of collection of
personal information;
– solicitation of personal information from
the individual concerned;
163
 Protection of Privacy…
– solicitation of personal information generally;
– storage and security of personal information;
– information relating to records kept by a record-
keeper;
– access to records containing personal information;
– alteration of records containing personal;
information, and
– record-keeper to check accuracy, etc., of
personal information before use.
 If an agency or organization breaches the
privacy principles, the Office of the Privacy
Commissioner may investigate the matter.
164
 Protection of Privacy…
 Mortgage brokers must comply with the principles
of the Privacy Amendment (Enhancing Privacy
Protection) Act 2012 when collecting personal
information
 A mortgage broker may face serious consequences
if they breach privacy rights by:
– accessing credit information files without
authorisation
– misplacing privacy documentation
– disclosing private information to third parties
without authorisation, or
– dealing with a credit report that has been
altered.
165
 The Code
of Banking Practice
 The Code of Banking Practice aims to promote the best
practices between banks and consumers in Australia.
– It is the banking industry’s customer charter on best
banking practice standards.
– The code applies to personal and small business
bank customers.

 The code applies to mortgage brokers in an

indirect way because banks should make sure
that their affiliated brokers also comply with
the code when originating loan products.
166
 The Anti-Discrimination
Act 1977
 In mortgage broking, discrimination may occur in the
process of approving a loan.

 In general, discrimination can be defined as…

‘a phenomenon in which someone is treated unfairly
because they happen to belong to a particular group
of people or have a particular characteristic’.

 Both ‘direct’ and ‘indirect’ discrimination are

against the law.

167
 The Anti-Discrimination
Act 1977…

 ‘Direct’ discrimination occurs when someone is treated

unfairly compared to someone else in the same or similar
circumstances, and this is because of their gender,
pregnancy, race, age, marital or domestic status, religion,
homosexuality, disability, transgender status or carers’
responsibilities.
– For example, if an employer won’t hire someone
just because they are a woman, this is likely to be
direct sex discrimination.

168
 The Anti-Discrimination
Act 1977…
 ‘Indirect’ discrimination means a requirement (or rule)
that is the same for everyone but has an effect or result
that is unequal and unreasonable having regard to the
circumstances.
– For example, an employer who says that they need a female
“with an Australian accent” to do a certain job could be
indirectly discriminating against an individual and some
ethnic groups, who are less likely to be able to meet
to this criteria compared to Australian-born residents.
 They could claim indirect sex or race
discrimination if they could show that the job
does not really need this criteria to function.
169
 Anti-Money Laundering
and Counter-Terrorism
Financing Act 2006
 Financial Transaction Reports Act 1988 (FTR Act) and
the Anti-Money Laundering and Counter-Terrorism
Financing Act 2006 (AML/CTF Act) place certain
obligations on providers of designated financial, bullion
and gambling services. (*Please note; IIT offer a ML3 AML course online
also.)

 The Australian Transaction Reports and Analysis

Centre (AUSTRAC) is established under the
FTR Act and continues in existence under and
administers the AML/CTF Act.
170
 Anti-Money Laundering
and Counter-Terrorism
Financing Act 2006…
 Regarding the financial services industry, the legislation
poses substantial reporting requirements of suspicious
transactions and customer-identity verification.

 Reporting takes place between financial service

providers and the AUSTRAC.

 Under the AML/CTF Act, a reporting entity can

authorise a broker to be an agent for the purpose
of carrying-out customer-identification procedures
on its behalf.
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 Anti-Money Laundering
and Counter-Terrorism
Financing Act 2006…
 A mortgage broker’s responsibility starts at this point.
Mortgage brokers are expected to complete AML/CTF
training and compliance training which have been
prepared by both the MFAA and FBAA.

 Brokers need to make sure that they comply

with industry best practice and any AML/CTF
procedures imposed by lenders.

172
 Complaints
and Conflict Resolution
 When consumers have suffered damage or loss as a
result of a broker’s conduct, they should be able to
access timely and effective remedies.
 Brokers are required to be members of a dispute
resolution scheme such The Australian Financial
Complaints Authority (AFCA).
 Apart from increased accountability, consumers
have the option to obtain financial remedies
without having to be involved in expensive
legal proceedings.
178
 Complaints
and Conflict Resolution…
 The common characteristics of the ASIC-approved
EDR schemes are:
– they are free for customers to use,
– they may involve some investigation, including requests
of both parties for information and documents,
– they use somewhat, informal processes and the claim
does not have to put in the form of pleadings,
– their decision is binding only on the industry
member and not on the customer,
– hearings in person are rarely conducted –
a decision will usually be made on the papers.
179
 Complaints
and Conflict Resolution…
 Some of the most common kinds of complaints are:
– problems arising from advertisements offering easy
credit to people in financial difficulty;
– complaints about paying excessive fees and poor
disclosure of these brokerage fees;
– loans were incorrectly documented as being for business
purposes;
– brokers requiring up-front payment of fees,
and refusing to provide refunds when unable
to arrange finance;
– mis-representations about the transaction by
the broker;
180
 Conflict Resolution…
 The Australian Financial Complaints Authority (AFCA) is the
new financial dispute resolution body that amalgamates the
Financial Ombudsman Services )FOS), the Superannuation
Complaints Tribunal (SCT) and the Credit and Investments
Ombudsman (CIO)

 These dispute resolution schemes are part of the

regulatory framework although they are not
regulators or government agencies.

 Membership of an ASIC-approved scheme

is a financial services requirement.
181
 Fraud risk in the Mortgage
Broking Industry
 Recent survey indicated as many as 2.7 million
Australians deliberately falsified details on their loan
applications by exaggerating or under-estimating figures.
 Most common types of Mortgage Fraud are:
– Application forms contain falsified information about
income, debt, employment and other issues.
– Tax returns commonly manipulated/altered to leave
the impression of higher income.
– Employment verification documents changes to
employment dates, hourly/salaried earning, job
position, or other work-related information.
182
 Fraud risk in the Mortgage
Broking Industry…
– Bank deposit documents inflated.
– Fraudulent valuation processes by the borrower, valuer or
both.
– ‘Jacking up’ or valuation fraud by inflating the value of a
particular property.
– Forged title deed or stolen identities.
– a Certificate of Title in the wrong hands allows a
con artist to pretend they are the homeowner,
perpetrate a fraud and obtain loan funds.

183
 Mortgage Brokers role
in Fraud Prevention
 Mortgage brokers play an important role in the
prevention of fraud because they are in the best position
to detect any falsified documents and evaluate the
originality of the application.
 Mortgage brokers should:
– establish a proper file management practice and
procedure;
– make sure that proper standards have been
applied during the valuation process;
– check that an applicant actually owns the title of
the property;
184
 Mortgage Brokers role
in Fraud Prevention…
– not hesitate to visit the property personally to have a look
at who lives there and who owns a particular property.
– make sure they obtain original documents and not
facsimile or photocopied records.
• Conduct a verbal verification of employment status of
the client by calling their employer.
– require the original of the forms and documents at
the front-end to discourage fraudulent borrowers.
– verify the seller on the contract is the owner of
record on the preliminary title report.

185