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The broker industry has expanded rapidly over the past few years as people become more aware of the benefits of obtaining finance through a broker. As the industry grows we are seeing more regulation introduced to protect consumers.
Everyone involved in the finance industry (including lenders and brokers) is covered by the Uniform Consumer Credit Code.
The UCCC covers a wide range of behaviours by brokers to stop brokers hassling consumers into signing up for a loan. This means a broker can not:
- Make false of misleading statements
- Ring consumers after 8pm at night
- Visit a person’s place of residence unless invited (ie no door-to-door selling)
Lenders are also obliged to make sure that borrowers are able to meet their obligation under the loan contract and there are regulations relating to the lenders actions if you are unable to meet your obligations.
Regulated or Unregulated Loans
Regulated loans are covered by the UCCC while unregulated loans are not. There is a formula to assist lenders in determining whether a loan is regulated. However, the simple rule is that if a loan is predominantly for business or investment purposes then the loan is unregulated, for example:
A. $300,000 to buy a home – regulated
B. $300,000 to buy an investment property – unregulated
C. $500,000 ($200,000 for owner occupied/$300,000 for investment) – unregulated
While the consumer doesn’t really get a choice as to whether the loan is regulated or unregulated, the structure of the loan can make a difference. For example, if the $500,000 loan above was split into a $200,000 and $300,000 loan then one could be regulated and the other unregulated. N.B. If you are in any doubt about this issue make sure you ask your broker for clarification.
Finance Broking Contract
There has been extensive media coverage regarding brokers commissions and brokers only offering loans from their panel of lenders. While no broker can cover all lenders, most reputable brokers will have a wide enough range of lenders to meet almost every requirement. As a rough guide, a broker should have around 25 to 50 lenders on their panel
From 1st August 2004, Finance Brokers are obliged to enter into a Finance Broking Contract with anyone applying for a “Regulated” loan. This contract sets out:
The type of loan being applied for (including interest rate etc)
The range of commissions payable by the different lenders
The panel of lenders a broker represents
While this only applies to “regulated” loans at this stage, most reputable brokers will be happy to disclose this information for all loans
Using a broker
There are many benefits in using a broker to obtain finance. However, it is important to select the right broker. After talking to a broker you should be fully informed about the loan product you are applying for and you should feel comfortable that the broker is looking after your interests. If you are not completely comfortable with the recommendation that has been made you can always ask the advice of another broker. |
