Key Issue

Issue description

Outcome

1

90 day versus 365

The original regulations allowed 90 days for the offset to be drawn and the maximum drawdown cap amount to be established.

 

This was extended to 365 days and the drawdown cap does not apply after day 365.

 

2

Contract date versus first drawing

 

The drawdown period commenced from the contract date and not the date first drawn.

 

Adjusted so that the 365-day drawdown period commences on “the first day on which an amount of credit is provided to the consumer under the credit contract” See 28VC(1)(e) i.e. when first drawn.

 

3

Potential limitations on paying trail

 

The drawdown cap applied to both upfront and trail which could limit the payment of trail in later years should a consumer access equity in their loan.

 

This has been resolved by the drawdown cap only applying in the first year.

The Explanatory statement states the following “The drawdown cap only applies to benefits given within one year of the beginning of the credit contract (regardless of whether they are upfront or trail commissions). The drawdown cap does not apply to benefits given after this period.”

4

Potential Retrospectivity

Original Act applied to benefits in relation arrangements entered into before or after 1 July 2020.

Applies in relation to conflicted remuneration given on or after 1 July 2020 which has subsequently been delayed until 1 Jan 2021 by ASIC credit instrument 2020/487. Further work still needed to ensure that benefits paid on or after 1 Jan 2021 in relation to contracts entered into between 1 July 2020 and 31 Dec 2020 are not impacted as may not be covered by the instrument which we do not believe to be the intent.

5

Top-ups

Upfront and trail on top-ups appeared to potentially be impacted based on draft wording which would have limited amounts paid to being based on drawdown amount in the first 90 days.

The 90 days drawdown period has since changed to 365 days and the drawdown cap does not apply after 365 days and hence this issue has been addressed.

6

Purpose

Initial wording in draft clause 28VB inadvertently only permitted remuneration for the purposes of funding residential property provided it met the drawdown cap requirements.

The wording has since been adjusted so as not to have that limitation.

7

Non-mortgage credit

Definition of “mortgage broker” does not apply at an activity level and so non-mortgage standalone credit also impacted regarding remuneration changes.

This remains un-changed and conflicted remuneration provisions will apply to all a mortgage broker’s credit assistance irrespective of whether the credit is secured by a mortgage over residential property.

8

Construction loans, reverse mortgages, lines of credit

Construction loans, reverse mortgages and lines of credit were unlikely to be able to meet drawdown cap requirements or be drawn within the period required.

Construction loans, reverse mortgages and lines of credit are no longer subject to the drawdown cap under Regulation 28VD and therefore not impacted by the drawdown cap limitations.

9

Education & Training – Lender Monetary payments

Monetary benefits provided by lenders to aggregators for education and training were not specifically referenced as non-conflicted in the Regulations and Explanatory Statement.

Lender non-monetary benefits are still not referred in the Regulations however the Explanatory Statement states: “Where a credit provider wishes to provide a monetary benefit to a mortgage intermediary, which the intermediary may use to provide education or training benefits for a licensee or representative of a licensee who provides credit assistance to consumers, this will be permissible to the extent that the monetary benefit provided to the intermediary could not reasonably be expected to influence the credit assistance provided to consumers, as per the definition of conflicted remuneration in the Credit Act”. The MFAA believes that such monetary benefits provided by lenders at an aggregator level (and normally by multiple lenders at the same time) could not be reasonably expected to influence the credit assistance and will therefore be permissible.

10

Education & Training – Credit rep v Licensee

Initial drafting allowed aggregator/licensees to pay for education and training (and associated costs) for credit representatives but not for those who were licensees.

The drafting has been rectified to remedy thereby allowing the aggregator/licensee to pay for both brokers that are credit representatives or licensees in their own right.

11

Non-monetary benefit under $300

The drafting is silent on whether this limitation applies to benefits given by both lenders and aggregators.

The final documents remain silent on non-monetary benefits paid by aggregators over $300. However, as there is no conflict at the aggregator level and as it not reasonably expected to influence the credit assistance provided to a consumer, it is the MFAA view that there is unlikely to be a $300 limitation on non-monetary benefits paid to brokers by aggregators.

12

Tiered Servicing

Any benefit provided by a lender under a tiered servicing arrangement was not specifically included as a non-conflicted non-monetary benefit in the Regulations and Explanatory Statement. Neither was it specifically referred to.

The following clause has subsequently been added to the Explanatory Statement “To the extent that they could not reasonably be expected to influence the credit assistance provided to consumers, tiered servicing or preferential service arrangements provided to licensees or their representatives will not constitute conflicted remuneration” . Clearly, the broker will need to be satisfied that the tiered servicing “could not be reasonably expected to influence the credit assistance” (which they should presumably be doing as part of meeting a Best Interests Duty) or else this could be viewed as a conflicted benefit.