Article published 26 February 2018, Page 19
The article raises a very important distinction between licenced finance brokers and those working in car yards as agents of lenders. Agents of lenders arranging finance for consumers in the car yards are not brokers, and therefore are not subject to the same stringent requirements that brokers are under current legislation contained in the National Consumer Credit Protection (NCCP) Act. This is by virtue of the Point of Sale Exemption contained in the Act. Prior to the commencement of the NCCP Act in 2010 the Government exempted Point of Sale (POS) vendor introducers who engage in credit activities at the point of sale from the requirements of the Act, including the credit licensing regime and the responsible lending obligations. ASIC has highlighted this exemption in a number of the related cases in its action against Esanda.
CAFBA is the peak national association of commercial and asset finance brokers, with strict standards for membership.
CAFBA members, who are professional asset finance brokers are not exempt and are bound by the Act when arranging finance for consumers, providing protection for consumers and sector-wide standards for brokers of consumer finance.
The outcome is brokers of consumer finance fall into 2 broad classes; those who are required to be licensed and those who are not, simply because they are vendor introducers. In our view, a broad-based vendor exemption for consumer finance introduced at point of sale is no longer tenable. It was intended to be an interim exemption for 12 months to allow the Government to consider the market and processes in greater detail. It is now approaching 8 years, with deep and distinct consumer and competitive disadvantages to show for it.
CAFBA members with licences must meet the NCCP Act and ASIC’s requirements.
The Current Exemption & Effects
The current exemption applies to POS vendor introducers on the basis of their status rather than according to their functions and avoids potential consumer detriment, allowing them to rely on the exemption even when they may have a significant role in product selection or otherwise performing a similar function to licensed finance brokers. This also creates a platform of unfair competition.
CAFBA members arranging consumer finance as licensees, must meet specified standards and comply with ongoing obligations as follows:
- Meeting general conduct standards, including acting fairly and honestly and managing any conflicts of interest so as not to disadvantage consumers;
- Maintaining their organisation’s competence to engage in credit activities, including having responsible managers and adequately trained representatives;
- Maintaining adequate financial resources and risk management systems;
- Meeting responsible lending conduct obligations, including ascertaining and verifying a consumer’s financial situation, and assessing whether the credit contract is suitable; and
- Belonging to an ASIC approved EDR scheme and lodging an annual compliance certificate with ASIC.
The POS exemption means that agents of the lender in the car yard:
- Are not required to meet any entry standards and the Australian Securities and Investments Commission (ASIC) is also unable to exclude vendor introducers from the credit market (even if they engage in conduct that is incompetent or dishonest).
- They can select, recommend or propose credit products without having to conduct an assessment as to whether the product is suitable for the consumer, or meets their financial requirements or objectives.
- There are limitations on the ability of consumers to access remedies for the conduct of vendor introducers.
These characteristics are at odds with the requirements of finance brokers, such as many CAFBA members who are licensed to arrange consumer finance, complying with the Act and applying responsible lending practices. The alternative to licensing is for brokers to act under the licence of a broker or a credit provider / lessor by being appointed its credit representative.
The exemption therefore does not provide any means of adequately regulating or controlling the activities of POS vendor introducers who may cause loss or damage to consumers, despite their linked credit providers / lessors being responsible for their conduct. Further, the risk of harm is more likely where the POS vendor introducer has selected the financier on the basis of the commissions they will receive if finance is approved, where those commissions increase to cost of finance paid by the consumer.
The exemption also means that there is a lack of competitive neutrality between POS vendor introducers and other businesses, like licensed CAFBA members, which are performing similar functions.