current regulation of finance brokers in nsw

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Current regulation of finance brokers in NSW

Credit (Finance Brokers) Act 1984 regulates relationship between finance brokers

and consumersConsumer Credit Administration Act

1995 supervision and discipline of finance brokers

Fair Trading Act 1987 general consumer protection provisions,

including prohibition on unconscionable, misleading and deceptive conduct.

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National Competition Policy Review of finance brokers legislation

Main risks faced by consumers are:brokers being influenced by

commissionsconsumer loss when commission

paid in advance and credit not subsequently obtained

excessive, undisclosed commissions and other fees

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National Competition Policy Review of finance brokers legislation (cont)

unethical conduct whereby brokers persuade consumers to borrow larger amounts than needed or to include fraudulent information in credit applications

consumer difficulty in obtaining redress without a copy of the finance broking contract.

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Review Recommendations

Legislation amended to: improve consumer protection increase competition keep up with new industry practices

Negative licensing system retained

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Consumer Credit Administration Amendment (Finance Brokers) Bill 2002

Provisions fall into five categories:definitionsdisclosure requirementscommissionsrecords and third party feesconsumer remedies

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Definitions

Finance broking - acting or purporting to act as an intermediary to negotiate and obtain consumer credit for a person, in return for a commission or financial benefit, whether payable by the client, credit provider or someone else

only covers finance broking where credit is predominantly for personal, domestic or household purposes

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Definitions (cont)

Client is the consumer for whom credit is obtained

Commission includes all fees payable by the consumer in respect of finance broking, no matter what they are called.

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Disclosure Requirements

Brokers must always enter into a finance broking contract and provide the consumer with a copy of the written and signed contract before commencing finance broking.

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Disclosure Requirements (cont)

The finance broking contract must contain:

details of the credit to be obtained, in terms of: the maximum amount of credit the term of the credit, if it is to be for a

particular term periodic repayment amounts and repayment

intervals, or other repayment arrangements

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the maximum interest rate the date by which the broker must

secure the credit name and address, ACN details of the

broker, and name and address of the principals of a business

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The finance broking contract must also contain:

information about: the amount of commission (if any) payable

by the client or, if the amount of commission is not known, the method of calculating the commission and an estimate of the commission that will be payable;

when and how commission will be payable.

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a statement, in a form to be prescribed by regulation, that the finance broker’s recommendations will be drawn from a limited range of potential lenders

a disclosure, if relevant and in terms prescribed by regulation, of the fact that a finance broker will obtain a financial or other benefit if credit is provided to the client

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Commissions

A broker can only claim commission if:(a) the credit has been secured(b) the credit matches the specifications in the credit contract, in terms of:

amounttermrepayment arrangementsinterest ratetimeframe within which secured.

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Commissions (cont)

If the broker secures credit on the terms specified and the client decides not to enter into a contract for that credit, the broker may still claim commission, provided: the contract was not validly terminated

before the broker secured the credit; and the finance broking contract states that credit

can be claimed in these circumstances.

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Commissions (cont)

A broker may not claim commission that is either: greater than the amount specified in the

finance broking contract; or greater than either the amount

calculated by the method specified in the contract, or, the amount estimated in the contract, whichever is the lower.

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Records and third party fees

Finance brokers must keep records of transactions for 7 years

Valuation fees and credit application and establishment fees must be in the form of a cheque, money order or transfer made payable directly to an appropriate person, as defined in the Bill

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Consumer remedies

The Consumer Trader and Tenancy Tribunal or a court may make a range of remedial orders if a broker: has not complied with the finance

broking contract; has engaged in, or is engaged in, unjust

conduct; or has charged an excessive commission.

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Other issues

Referral feesProfessional indemnity insuranceDeeming the broker to be the agent

of the credit provider