Mortgages-Consumer Protection At Last

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Permalink Reply by JG on July 4, 2008 at 9:26

Where'd you hear that?

A COAG communique is not law you know.

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Permalink Reply by Kylie on July 4, 2008 at 14:55

Consumers currently have some protection in that if you are offered credit (house, credit card, or personal loan) by a bank and you accept this offer, then you find yourself struggling to repay the loan, you have some come back. The bank MUST make sure that you can make the repayments. If not the bank can become liable for the loan.

Example. A friend (yes really a friend!) got a loan a few years ago for a block of land. This friend then got a loan through a bank, that a franchise principle recommended, to purchase a franchise through him. Loan approved, easy as that. This friend ran into some trouble ,as self employed people can with cash flow, so she did the right thing and went to the bank. The bank gave her a credit card with a small limit to see her through.

Guess what, she again ran into trouble, so the obliging bank gave her an increase in her credit card limit, two more times. By the time she confided in me about the state she was in she was frantic.

The bank showed irresponsible behaviour by increasing the credit card limit and therefor increasing the burden and interest rate of her debt.

This lady contacted the ombudsmen with as many details as she could gather about loans received, the dates and amounts etc and that in reality she should never have been offered the loan as she could not afford the repayments.

The end result was that she gave the bank her block of land, in return they wiped all of her debts with no ...I can't think of the word...comments? on her CRRA report, you know if you are late paying a bill it goes on your history with the CRRA and stays there for 5 years or so. She also did not have to go bankrupt!

This only worked because the bank was in the wrong, you can't get a loan, then spend all your money if you showed that you could afford the loan in the first place.

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Permalink Reply by MoneyMagnet on July 24, 2008 at 23:45

In the past consumers were protected through the states under the Uniform Consumer Credit Codes. The Federal Government has taken control and in the near future the regulation of consumer credit will be undertaken by ASIC. It means that their will be uniform regulation across Australia, eventually all brokers will need to be licenced (similar to financial planners), will need to have COSL, and perhaps professional indemnity insurance. Most reputable brokers will already have this.
Banks have always had retention teams who usually contact the borrower to try to get them to stay.....and that causes some delays, but that can also be good for consumers. Sometimes its good to stay with your existing lender if you can get a better deal with them without the costs of refinancing.
Banks and non bank lenders make more money on loans the longer the borrower stays. In fact, banks make very little money in the first 12 months of a loan. It costs them more than the application fee charged to set up a loan, including paying either the broker, or their own branches commissions, their credit assessment departments, legal departments to draw up documents and attend settements etc. They have early discharge fees usually in the first 2 years, and sometimes even up to 4 years, to recoupe some of these costs. After all, they are in the business of making money.
The good thing about regulation is that some of the cowboys will leave the industry, all will require qualifications and will require expensive indemnity insurance...that can only be a good thing, for both consumers and the industry alike. Bring it on!

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Permalink Reply by ken on July 25, 2008 at 9:50

PJF Leglisation has not been approved it is in draft stages. My question is are the banks, credit unions, building societies, co operative housings societies, ATSIC & money lenders being included & are all debt types included eg Credit cards, Lease finance, Store cards,non regulated loan, Commercial finance ????

I quess you are not aware that lenders in general have reduced their commissions to brokers by up to 33 %. What would workers say if their pay was reduced by 33% without consulation & then have no recourse to appeal the pay cut.

Name an industry where there are not unscrupulous operators.

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Permalink Reply by Bandwidth on July 25, 2008 at 10:05

Any business sets itself up in the known and projected market conditions, good businesses adapt to the changing market conditions. Brokers are not employees of the banks they are seperate businesses that set up when market conditions were good. Market conditions are not what they were. So like buggy whip makers or Large car makers brokers need to adapt to survive.

Brokers, in any business, always need to remember they can only make money when they add value above the direct interaction of the other parties.

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Permalink Reply by LS on July 25, 2008 at 13:10

This is true - wherever there is money to be made there will be unscrupulous operators trying to fleece people. While the mortgage broking industry is no different, this is also true of of the banks, where sales staff are driven by the profit motive. So we're in the same boat as we were before.

But this is just a small percentage of brokers - just like it's a small percentage in any industry. This is why consumers need to shop around to find someone they can trust, not just go to one person because it's the easiest thing to do.

Another important part of the process is to report dodgy people - no matter the industry. THere is always an industry body who wants to have a clean industry and who is happy to make an example out of a member to help discourage other people from doing dodgy stuff.

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Permalink Reply by Bandwidth on July 25, 2008 at 14:18

Hello Lyndsay

You seem to have a thing about "unscrupulous operators" and people doing "dodgy stuff". What I have found is that if I just accept that things will sometimes not going my way or as expected and that other people have their own way of doing thing then I can then focus on what I need to do to make my life better.

In making an example of someone I think we live in a "shame and blame" society where someone other than ME is to be made responsible for what happens to ME

Regulating industries is a measure of control that govts like to apply in the name of "looking after the battlers". It can also be looked at as a method of staying in power.

A major part of the current credit crunch was the American Govt intervening in the money market by giving incentives to lenders that lent to people who were unable to repay the loan.

By doing this they were able to take a large number of the govt assisted housing off the books.

The reason the OZ govt gives property investors a tax break is because they want to reduce the amount of low cost housing they carry.

Regulation is often used to replace sensible management practices.

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Permalink Reply by JeffK on July 26, 2008 at 19:05

Hi Ken, so where do brokers go from here if they've had commission cut by 33%??? I remember when I was dealing with brokers they got 0.60% upfront and 0.25% trailing commission on the loan. Was it their upfront that was cut, or the trail? And how do they survive with lower commissions AND less people taking out loans???! (I assume you work in/have worked in the industry).

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Permalink Reply by MoneyMagnet on July 28, 2008 at 23:09

Upfronts and trails have been cut. As a broker, I can honestly say, its damn hard and most of us are diversifying as much as we can. I think there will be a lot of operators going out of the business in the long run, especially the part timers. Trails have been cut by half, and no longer for the first year or even two of the loan.

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Permalink Reply by Mary M on July 29, 2008 at 12:29

Hi MoneyMagnet,

Cut in half!!! How can your business stay afloat with half the trail?!!

Have all the banks done this, or just a few? First they set up brokers and then cut off their legs from under them. Typical of banks.

Mary M

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Permalink Reply by Spoiltgirl on July 29, 2008 at 13:24

Does this perhaps mean I can finally do something about being caught in the RAMS - RHG home loan debacle - signed up with a non-bank lender promising lower rates and 6 months later find myself with a lender that has a higher variable rate (now 10.7%) than any of the big four banks that it prided itself on "beating" with all its marketing literature.

Incidentally has anyone else got stuck in the middle with this rotten deal? RAMS as a brand (Westpac) still has low rates but RHG is going beserk increasing them.

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Permalink Reply by Bandwidth on July 29, 2008 at 13:41

The prolem we have is that RAMS and others relied on the margin between the wholesale cost of money and what the punter pays. They were effectively a re-lender. Wheh wholesale rates are good they can compete but they have very little room to move.

RAMS and others have done more than their fair share of bank bashing and we need to remember what goes around comes around. Why would the banks lend money to RAMS at a low rate when they can do better or the same elsewhere.

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