Two routes to the new lender
The National Consumer Credit Protection Act has a part for licensees that provide credit assistance, which it says is aimed at better informing consumers and keeping them out of unsuitable credit contracts. The same part also says that “these rules do not apply to a licensee that will be the credit provider under the credit contract”. So the papers depend on the route.
Through a broker
- The broker’s credit guide, and a quote to sign before the broker can provide services and ask you to pay a fee.
- A proposal document when the broker provides credit assistance.
- A preliminary assessment of whether the loan is ‘not unsuitable’.
Direct to the lender
- ASIC says the timing of a credit guide depends on the kind of licensee and what it does, but generally comes before it engages in credit activities with you.
- The lender’s final assessment of whether the loan is ‘not unsuitable’.
What a broker’s credit guide must carry
Section 113 requires a licensee to give you its credit guide as soon as practicable after it becomes apparent that it is likely to provide you with credit assistance for a credit contract. Among other things, the section says the guide must “specify the licensee’s name and contact details” and “specify the licensee’s Australian credit licence number”.
ASIC’s information sheet on disclosure adds that the guide must list the six credit providers or lessors the licensee does the most business with. It also notes one exception about complaints: a licensee that is not a member of AFCA, and is not required to be, need not include AFCA’s contact details.
The list of lenders matters to the duty in a broker on a refinance: ASIC says a broker that is not satisfied the products and lenders it can reach will let it act in your best interests must not give you credit assistance.
The rule has teeth. Section 113 carries a civil penalty of 5,000 penalty units, and failing to give the guide is also an offence of strict liability.
The quote, and the line about a switch that falls through
Where there is a quote, ASIC says it comes before the credit assistance: you must have accepted it by signing and dating it, and you must be given a copy of the quote you accepted. Section 114 says what the quote must do. Two of its requirements, in the Act’s words:
| The quote must | Paragraph |
|---|---|
| “specify the maximum amount that will be payable by the consumer to the licensee in relation to the licensee’s credit assistance and other services” | 114(2)(c) |
| “state whether the maximum amount or any other amount will be payable by the consumer to the licensee if a credit contract is not entered or a credit limit is not increased” | 114(2)(e) |
The second line is the one that speaks to a refinance that never goes ahead: the quote has already said whether anything is owed to the broker in that case. The licensee must not ask for, or demand, more than the maximum the quote sets. ASIC adds that the quote must describe the credit assistance and other services it covers.
Moneysmart puts the same rule from the borrower’s side: you sign a quote before a broker can provide services and ask for a fee, and a broker cannot ask for a fee before it has provided its services. Moneysmart explains that lenders generally pay brokers a commission, so borrowers do not pay them directly; the commission is a percentage of the loan, and typically has an upfront part and an ongoing part. Brokers must give you information about the commissions they may receive.
The papers after the quote
When the broker provides credit assistance, it must give you a proposal document at the same time, showing the total fees and charges you will pay for the credit contract and a reasonable estimate of the indirect payments the broker expects to receive.
The written assessment is yours on request. ASIC says a credit assistance provider must give a free copy if you ask within seven years of the date of the quote, and that the deadline depends on when you ask: within two years of the quote, the copy is due within seven business days; after two years, within 21 business days of the request. For a credit provider the clock runs from the contract instead: a free copy if you ask within seven years of entering it, due within seven business days if you ask within two years of its start, or 21 business days after that. The new lender’s checks covers what that assessment weighs.
These documents can be handed to you in person or, if you agree, sent electronically, and you can withdraw that agreement at any time. A licensee may combine two or more of them into one document, as long as every other requirement, including timing, is still met.
ASIC treats a failure here as serious: breaching the disclosure obligations is a breach of the law, with significant criminal and civil penalties, and ASIC may also suspend, cancel or impose conditions on a credit licence. If a paper was missing or wrong, complaints about a refinance sets out where to raise it.
Next station: A broker on a refinance