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March 13, 2012

FOS identifies new systemic credit issues

FOS has summarised the new credit-related systemic issues that it identified during the December quarter of 2011 and reported to the Australian Securities and Investments Commission (ASIC):

Recovery from applicant of costs of dealing with FOS
Paragraph 1.1 of the FOS Terms of Reference states that the dispute resolution service provided by FOS is free of charge to applicants and is paid for by FSPs. ASIC Regulatory Guide 165: Licensing: Internal and external dispute resolution (RG 165) also affirms the principle that customers should not have to pay to use internal dispute resolution services.

An FSP acknowledged that, despite its policy providing that any costs incurred relating to accessing FOS must be borne by the FSP, it had identified instances where legal costs had erroneously been charged to a customer’s loan account.

In order to resolve the issue, FOS requested that all costs erroneously charged to the affected customers be refunded in full, together with interest payable at the relevant loan rate and that lawyers should produce separate invoices for legal costs relating to disputes lodged with FOS to reduce the likelihood of similar errors occurring in future.

Error in credit listing
FOS has handled a number of disputes in which the applicant alleged that the FSP had made default listings on its personal credit files for amounts that were not 60 days overdue. It appeared that the FSP was incorrectly listing amounts equivalent to the accelerated amount of the debt, thus depriving applicants of the opportunity to remedy the default prior to listings being made.

In addition, FOS had concerns about the adequacy of the default notice used by the FSP. The apparent faults included the inaccuracy of the amount in arrears, the FSP’s failure to warn applicants that the remaining loan balance was payable if they failed to rectify the default within 35 days and its failure to specify the amount of the remaining loan balance as required by the Credit Code . Further, the notice did not mention the possibility that a report could be made to a credit reporting agency or that a default listing might follow if payment was not made within a specified time.

FOS also had concerns that the FSP appeared to treat the remaining loan balance as payable 30 days from the date of its notice rather than the deemed delivery date in the ordinary course of post.

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Posted 13th March 2012 by David Jacobson in EDR, legislation

Consumer credit insurance: the UK experience

The UK Financial Services Authority is currently managing a massive process to compensate consumers who were "mis-sold" payment protection insurance (their equivalent of consumer credit insurance).

The claims relate to circumstances where people say they were sold PPI but:
• did not know they had been sold it
• would not have been able to claim under the policy due to exclusions or limitations (for example a number of policies did not provide cover for people who were self-employed), and
• did not need the policy as they had sufficient cover elsewhere.

According to the FSA, £1.9 billion redress was paid to customers in 2011.

In Australia ASIC's report 256 published in 2011 identified some risks in sales practices but not on the scale now revealed in the UK.

BBC News

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Posted 13th March 2012 by David Jacobson in legislation, responsible lending

Credit Code and PPSA compliant default notice templates and guide available

You cannot contract out of the Personal Property Securities Act enforcement provisions for collateral used predominantly for personal, domestic or household purposes but some relief has been given where you comply with the National Credit Code requirements.

If you need default notice forms which comply with the National Credit Code and the Personal Property Securities Act and with State and Territory legislation which applies to real estate mortgages, we can supply template forms for use in relation to unsecured loans, goods secured loans, guaranteed loans, and real estate mortgage secured loans in every State and Territory, as well as a guide which explains how to complete them and serve them.

For an annual fee we will update them if the relevant laws change. Why don’t you call us to discuss a package which suits you?

Langes+ can also issue default notices for you. We can give you the option of giving instructions on-line if you want it, and give you access to on-line reports which are customised to suit your needs. We’d be happy to discuss your particular requirements, the options and the costs.

Please contact Shannon Adams (08 8168 9601) or Joshua Annese (08 8168 9604).

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Posted 13th March 2012 by David Jacobson in legislation

March 9, 2012

ASIC issues revised credit licence guides

ASIC has updated Regulatory Guide 204 Applying for and varying a credit licence (RG 204) and Regulatory Guide 206 Credit licensing: Competence and training (RG 206) to reflect the following changes:

  • the end of the transition period between credit registration and credit licensing
  • legislative changes that have been made since June 2010
  • changes to ASIC’s policy on organisational competence and representative training for credit licensees that provide home loans and
  • changes to ASIC’s assessment process for credit licence applications to require provision of bankruptcy checks for fit and proper people of the applicant instead of a credit history report.

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Posted 9th March 2012 by David Jacobson in licensing

FOS disputes and lender’s mortgage insurance

The Financial Ombudsman Scheme (FOS) has published an article outlining its views on a financial service provider's obligations in dealing with a customer in financial difficulty when the FSP has made a lender’s mortgage insurance claim or may potentially do so after the sale of the customer’s property.

Making a claim on LMI
FOS argues that a FSP may not make an LMI policy claim while FOS is considering a dispute. It considers that entering into an LMI policy with an insurer does not override the duties or obligations that a FSP has to its customer, including the obligation to give genuine consideration to a customer experiencing financial difficulty.

Following directions from the mortgage insurer
FOS says that if a FSP merely follows the direction of its insurer and does not form its own view on the customer’s ability to repay the residual debt under a repayment arrangement, it may be unable to demonstrate that it has met its obligation to genuinely consider a hardship variation. If FOS concludes the FSP has not met its obligations, it can require the FSP to vary the credit contract in order to better address the applicant’s financial difficulty.

FOS can also make an award for non-financial loss if an FSP is found to have breached its obligations to assist borrowers in financial difficulty under 25.2 of the Code of Banking Practice or under the Mutual Banking Code of Practice (Codes) or good industry practice.

Resolving the dispute
How FOS handles a dispute will depend on where the debt resides:

  • If the debt is currently with the FSP, then in most cases FOS will raise the dispute against the FSP and it will expect the FSP to take no further steps in making an LMI policy claim until the dispute has been finalised.
  • If the FSP has made an LMI policy claim before the applicant lodges the dispute with FOS but the claim is yet to be paid by the insurer, FOS will not prevent the insurer from continuing to assess and process the claim. However, FOS will require documentation from the FSP to show that the claim was raised with the insurer before the dispute and FOS will still continue to consider the dispute against the FSP.
  • If the claim is approved, the dispute against the FSP will come to an end. The applicant can lodge a new dispute against the insurer with the relevant EDR scheme. If the applicant did lodge a new dispute, the insurer would have to cease all collection activity or recovery action while the EDR scheme is considering the dispute.
  • Alternatively, if the insurer declines the claim then the FSP must continue to respond to the dispute.

In FOS's view, "it is therefore not appropriate for terms of settlement to provide that the shortfall debt, when known, be immediately referred to the insurer. This is because the passage of time between the date the terms of settlement are agreed and the settlement date of the sale of the security property may result in a change to the applicant’s financial circumstances. The FSP should genuinely consider the customer’s ability to pay the shortfall debt when it becomes due. A repayment arrangement may be more appropriate than any claim on the LMI policy at the relevant time."

Langes can provide advice on handling a FOS dispute or negotiating the terms of settlement.

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Posted 9th March 2012 by David Jacobson in EDR

March 8, 2012

CBA undertaking: misleading message on credit card limit increase invitation consents

Even though the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011 permits the obtaining of informed consents for credit limit increase invitations before the prohibition on unsolicited credit limit increase invitations commence on 1 July 2012, ASIC has taken the view that a recent CBA promotion was misleading and the consents obtained were not valid.

ASIC has announced it has accepted a court enforceable undertaking (EU) from Commonwealth Bank of Australia (CBA) that it will not rely on the consents obtained from customers on 12 and 13 December 2011 and that it will contact each customer who consented correcting any misleading impression and informing them of their rights.

According to ASIC, on 12 and 13 December 2011, CBA sent messages via its internet banking platform to customers notifying them of the changes to the law regarding credit limit increase invitations. CBA requested that customers provide their consent to continue to receive credit limit increase invitations. Approximately 96,000 customers provided their consent. CBA immediately withdrew the message when ASIC raised its concerns.

ASIC formed the view that the messages were misleading as they:

  • suggested that if CBA’s customers did not complete the electronic consent in response to the message they would lose the chance to receive credit limit increase offers
  • suggested that if they did not consent, customers would miss out on opportunities to access extra funds should they need them, and
  • created the impression that customers needed to act urgently, which may have led customers to respond without properly considering their options.

In addition to concerns about the messages being misleading, ASIC was also concerned that the consents were not informed as required by the Act.

Credit providers are permitted to seek and obtain consents from consumers to receive credit limit increase invitations prior to 1 July 2012 so they can rely on those consents for the purpose of making an unsolicited credit limit offer after commencement.

The consumer may withdraw the consent at any time.

After 1 July 2012 a licensee must keep a record of consents the licensee obtains and withdrawals of such consents.

Any consent must be informed consent. Before obtaining the consumer’s consent, the licensee must inform the consumer of the following matters:
(a) that the consumer has a discretion whether to apply for any increase of the credit limit;
(b) that the licensee has a discretion whether to grant any increase applied for;
(c) that the consumer may withdraw the consent at any time;
(d) any other matters prescribed by the regulations.

Background

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Posted 8th March 2012 by admin in legislation, responsible lending