As a Connective broker, you will be well educated on the four C’s of Credit – Collateral, Capacity, Character and Credit. But did you know that there are also six C’s of Compliance? Read on to find out more!
Understanding your client's circumstances is an integral part of meeting your responsible lending obligations and ensuring the product(s) recommended are not unsuitable for the client’s needs. Having the client complete the Needs Analysis will help you understand what the client is trying to achieve.
Completing the calculators in Mercury, is more than just working out the borrowing capacity of your customer. While the capacity to service is essential to the loan application, the funding position and product comparison calculators are equally important.
The funding position evidences the client’s position to complete the transaction from the net funds available that they have to contribute. If there is a deficit in the funding position calculator you need to provide commentary on the ability of the customer to meet settlement. This may be coming from a collateral security, gifted funds, or an additional loan, however, it is essential that the clients are able to meet the settlement of the transaction.
The product comparison evidences you have understood the client’s circumstances, undertaken a needs analysis and have identified that the selected products are the most suitable for the particular client.
Completed correctly, the calculators will automatically populate into the Compliance documents and evidence the client’s ability to complete the transaction, not just from a borrowing position, but fees charges and surplus funds at settlement.
Consideration and choice
In the majority of circumstances, your recommendation of loan products should provide the client with options to choose from. A note should be made in Mercury detailing why the client chose the final lender. Always remember that you should not make the choice on behalf of the client. In some unique circumstances, where no choice were provided to the customer, an explanation should be made in Mercury providing a reason why only one lender option was provided to the client.
Collect, Check, Cross-reference, and confirm
Submitting an application to the chosen lender is more than just collecting the paperwork from the client and passing this on. All information the consumer sends must be checked for accuracy as part of your responsible lending verification process. Checking for accuracy means ensuring the paperwork sent by the client is in their name, meets the requirements of the lender and if there are any anomalies to undertake additional checks and balances to ensure the authenticity of the information supplied. This could be as easy as making sure a payslip is within 4 weeks of being issued, bank statements show the clients name and is not just an internet print out and things such as group certificates have tax file numbers removed.
In the event that the information doesn’t correlate to the information the client has supplied during the course of their interview, then additional checks and confirmation will be required. Common examples of this include, the customer sends in their bank statement showing funds to compete the transaction, but all the deposits are lump sum amounts of $20,000. Additional questions to the client confirming the source of this money should be undertaken.
Effective communication is an essential part of overall business health. All your communication (emails, texts and notes) should be stored in Mercury as evidence of the communication with your client. But this is not only limited to client communication and involves anyone who has been a part of the transaction including a valuer, credit officer, accountant, credit officer, settlement officer, conveyancer etc.
Good communication and effective listening are also components of responsible lending. If you are unsure of what the client is requesting, ask more questions. Communication should also be scaled up and increased where the client’s capacity to understand the language or a complex transaction is limited.
Most complaints the Compliance team mediate are also as a result of a breakdown of communication between a broker and a client. By maintaining good communication throughout the process, your client’s overall satisfaction with you will be increased and hopefully lead to recommendations of your services.
Your client’s consent is essential if you are going to undertake further checks and balances. The client may need to provide their consent for you to speak to their payroll department, their accountant and so on. Don’t just presume that you can.
Given the personal information you are dealing with your email signature must contain a short form privacy statement which includes the line: “By asking us to assist with your credit needs, you consent to the collection and use of the information you have provided to us for the purposes described above.”
While there are many other “C”s in compliance (conditions of the loan, CPD points, and most brokers favourite… commission!), remaining compliant in your business is not as difficult as it may seem. Compliance is really common sense and good business practices. By following the above steps you will be well on your way to remaining compliant with legislation and regulatory guidelines.