Under the NCCP Act section 8, if you suggest to your client to remain in a particular credit contract you have provided credit assistance. For our brokers you may be considered to have provided credit assistance by varying an existing credit contract, completing a product switch (i.e., Variable to Fixed), or applying for, or extending an interest only term.
During COVID there were some changes to how ASIC treated variations to ensure NCCP was not a barrier to assisting customers who required changes.
However, with the implementation of the Best Interests Duty, brokers must be able to demonstrate they have undertaken the steps necessary to comply with NCCP when helping a customer to vary an existing loan. This will protect you and your business in the event a dispute or complaint arises in the future.
What is required when making variations to existing credit contracts?
1. Recap information held on file to ensure no material changes have taken place. Our suggestion is to send out the previous preliminary assessment or AOL application and seek your client’s confirmation with regards to what may have changed in their personal or financial circumstances such as:
a. Income – same job / same pay scale
b. Changes in liabilities
c. Changes with dependents
d. Living expenses
e. Any changes to circumstances which have occurred
f. Any foreseeable changes the customer expects to occur
2. Collect a current home loan statement to look for any arrears. If arrears are evident document your conversation around:
a. What lead to the arrears – reduced hours / job keeper / loss of job
b. Ability to meet repayments – hours are back to full time, new job etc.
3. Education provided
a. Document the discussion you have had with your clients.
b. Provide the fact sheet or detail your explanation of the pros and cons of the new feature the customer is seeking
c. Discuss potential costs such as break costs
4. Best interest duty
a. Document your understanding of the client’s objectives - "Seeking variation to existing loan, from variable to fixed so their repayments do not change for the term”
b. Document why this is in your client’s best interest
c. Provide product comparisons as a way of showing your client what else is available in the market.
If the customer informs you under step one that material changes have occurred to their financial position, you must ensure the customer can service the loan on their new position.
Remember, by facilitating a variation to their existing loan, you are recommending they remain in their credit contract, and this constitutes credit assistance.
Tips on Interest Only Options
Tips on fixed rate options
New client seeking only a variation:
At times, a customer may come to you seeking only to switch the product on an existing loan as their original broker may have retired. As you were not the originating broker and did not undertake the suitability assessment you are required to adhere to NCCP and so must;
Ensure the customer can service without hardship and
Ensure the loan is not unsuitable and meets the client’s requirements; and
Ensure the loan is in the customer’s best interests.
In these situations, you are required to complete full compliance, documentation, though a scaled back approach can be applied to reasonable enquiries as outlined in RG209.
For example, you may not need to undertake an assessment of the customers living expenses if it is apparent the customer can service the loan on their current income and financial position.
Why are making notes so important?
Documenting the reasons why a customer has requested a product switch is key to removing any potential ambiguity later. If a client claims the broker should not have assisted them because they were in hardship, then having sufficient notes on file will help protect you and your business from Lender investigations and AFCA complaints.
Some lenders continue to require a full assessment when making variations to a client’s loan, while others have chosen to scale back the information, they need to make the switch. Please ensure you keep up to date with the changing requirements and if unsure, discuss with your lender BDM. Please note that Connective Credit Representatives need to remain compliant with both Connective’s and the Lender’s requirements.
Ask your Compliance Team for help with complex scenarios!
Complex scenarios often require additional clarification, especially if the funding is for multiple purposes. Whatever the lending need, we’re happy provide guidance on any loan scenarios you have. Simply click your help icon in Mercury to get in touch, or email us at email@example.com and we’ll be on hand to help!