ASIC – Page 27 – Digital Finance Analytics (DFA) Blog

ASIC permanently bans Perth mortgage broker

ASIC says it has permanently banned a former Perth-based finance broker from engaging in credit activities.

ASIC found that the broker engaged in misleading conduct by providing false income supporting documents to Westpac Banking Corporation Limited in support of home loan applications for three of his clients in 2015. Only one of the three loan applications was approved.

At the time, the broker was operating his own finance broking business through his own credit licence under the trading name Active Approvals. His credit licence was cancelled in April 2016 at his request.

ASIC Deputy Chairman Peter Kell said the banning reinforces the strong message to any broker considering engaging in misleading conduct.

‘ASIC will not hesitate to permanently remove those who engage in misleading conduct from the industry,’ Mr Kell said.

The broker has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decision.

Background

Since becoming the national regulator of consumer credit on 1 July 2010, ASIC has investigated in excess of 100 matters relating to loan fraud and has achieved many enforcement outcomes against the offenders.

The outcomes range from undertakings by persons to voluntarily leave the industry, to bans and prosecutions. To date, ASIC has banned, suspended or placed conditions of the licence of 77 individuals or companies from providing credit services (including 33 permanent bans).

Through the Office of the Commonwealth Director of Public Prosecutions, ASIC has also brought criminal prosecutions against 14 credit service providers; with 12 having been convicted of fraud or dishonesty offences relating to the provision of false and misleading information/documents to lenders in client loan applications.

ASIC action sees BMW Finance pay $77 million in Australia’s largest consumer credit remediation program

ASIC says it has accepted an Enforceable Undertaking (EU) from car financier, BMW Australia Finance Limited (BMW Finance), which will see BMW Finance implement Australia’s largest consumer credit remediation program to compensate customers for its responsible lending failures.

BMW Finance provides motor vehicle finance to consumers, directly and through a network of motor vehicle dealers. The affected consumers have car loans for a wide range and variety of vehicles and car brands, both new and second hand.

The program which is open to all of its customers under the BMW Financial Services, Mini Financial Services and Alphera Financial Services brands, will provide at least $72 million in redress for consumers made up of:

$14.6 million in remediation payments;

$7.6 million in interest rate reductions on current contracts; and

$50 million in loan write offs.

BMW Finance has also agreed to pay a $5 million community benefit to contribute to consumer advocacy and financial literary initiatives.

The remediation program will identify at least 15,000 customers, who between January 2011 and August 2016 may have suffered hardship as a result of BMW Finance’s compliance failures, and will ensure appropriate remediation. BMW Finance will also remove default listings and buy back all debt sold to third parties to ensure that the written-off loans are not subject to further collections activities.

The program will be overseen by an independent remediation consultant, who will periodically report to ASIC on its progress and BMW Finance’s compliance with the program.

‘BMW Finance had a sales-driven culture that failed to comply with the requirements of the credit laws and resulted in poor outcomes for many consumers. We are encouraged that BMW Finance has recognised these shortcomings and agreed to a remediation program that will see thousands of consumers compensated,’ said ASIC Deputy Chairman, Peter Kell.

‘This is an example of the staggering cost of poor business practices and should act as a warning to other car financiers to get their houses in order’ Mr Kell said.

While more than 15,000 customers will be invited by BMW Finance to participate in the program, customers who think they might have experienced hardship as a result of entering into their loan are encouraged to immediately register for the program by calling 1800 448 225 or emailing BMW using the details below.

ASIC has also amended BMW Finance’s Australian Credit Licence to extend an external consultant’s oversight of BMW Finance until the end of 2017 and introduce ‘live review’ testing of credit applications.

Consumers can also find out if they are due any compensation from BMW Finance by visiting ASIC’s MoneySmart website. The website also has useful information on car loans and the new MoneySmart Cars app that helps you work out the real cost of buying a car.

Update on licence conditions of two CBA financial advice businesses

ASIC has released the findings of a report by KordaMentha Forensic assessing the steps taken by Commonwealth Financial Planning Limited (CFPL) and Financial Wisdom Limited (FWL) to communicate with and compensate customers of 15 former advisers for advice they provided between 2003 and 2012.

This report was required under additional conditions imposed by ASIC, with consent, on the Australian financial services (AFS) licences of CFPL and FWL in August 2014 (refer 14-104MR and 14-192MR).

The report finds that in most instances, the licensees have complied with their licence obligations to consistently apply a remediation program to customers of the 15 advisers.

However, in some instances, the licensees failed to meet the time-frames specified in the additional licence conditions. In those instances, the licensees failed, within the required time-frames, to communicate with customers or provide them and their independent advisers with relevant information to help them to assess their advice or compensation. The licensees subsequently rectified these deficiencies by providing the information to the clients and advisers. ASIC does not propose taking any further action.

The report also provides an update on compensation outcomes arising from the additional licence conditions. To date, the additional licence conditions have resulted in a further $4.96 million being offered to 185 customers of the 15 advisers. This is in addition to the $26.97 million paid to 707 customers of the same 15 advisers under a previous compensation program. For further information about that compensation program, see KordaMentha Forensic’s Comparison Report, published in April 2015 (refer 15-083MR).

KordaMentha Forensic’s next report regarding the licensees’ current review of advice given in 2012 and earlier by 17 further potentially high-risk advisers, including any further compensation outcomes, will be published by ASIC in 2017.

ASIC to target bank cross-selling

From InvestorDaily.

The corporate regulator has revealed to a parliamentary inquiry it has asked the major banks for an audit of their cross-selling practices.

Appearing before a parliamentary hearing last week, ASIC deputy chair Peter Kell responded to the committee’s questions regarding ASIC’s efforts in liaising with banks to monitor and ensure “what happened with Wells Fargo” is not being repeated in Australia.

“We have written to the four major banks as well as Suncorp, Bank of Queensland, HSBC and Citi within the last week asking them to undertake an audit of this issue of the cross-selling practices within their institutions and to report that to the regulator,” Mr Kell said.

“We are looking forward to their response and would hope that some of them were already undertaking such a review.”

The committee further quizzed Mr Kell on how ASIC will address the issue of vertical integration in banks and large financial advice businesses, asking if adopting an approach similar to the UK would be an option.

Mr Kell said, “The work that is currently underway to lift professional standards in advice is fundamental here.

“For too long the sector has described itself as a profession, but has not acted like a profession – where putting the interests of the clients first is supposed to be fundamental. We strongly support the reforms that are under way in that space … and that will make a contribution to stopping vertical integration.”

Mr Kell added that the key issue is whether a vertically integrated business model is capable of prioritising the best interests of the client.

“This issue is what we are in the process of testing and is part of our reviews and our work at the moment where we will soon be releasing some results,” Mr Kell said.

By definition, it is impossible to have a vertically integrated business model that puts the interests of clients first as, “if advisers are remunerated in a way that favours the pushing of a bank’s products then there is a conflict of interest. Once you take that away – there’s no reason to have a vertically integrated business model because there’s no advantage”, the committee said.

ASIC was also questioned on its next steps following the introduction of the adviser education reforms last week.

The committee voiced concerns that there are still “very dubious practices in terms of how easy it is for people to enter the sector with the capacity to give financial advice”.

Mr Kell said, “We have a lot of work underway in terms of looking at the financial advice businesses of the major banks and Macquarie and AMP, but also more broadly in the industry.

“Some of the most problematic conduct we’ve seen is in the small to medium planners and we are taking action there.

“We have been pleased to see that the banks are anticipating the new requirement for standards coming in and have begun recruiting people who have a minimum level of a degree or matching requirement.

“There is obviously a way to go but I think most of the sector recognises that these standards need to go up and it’s certainly headed in that direction.”

ASIC bans former Westpac financial planner for eight years

ASIC has banned a former employee representative of Westpac Financial Consultants Ltd (which is a part of the Westpac Banking Corporation), from providing financial services for eight years.

ASIC found that during the period between July 2010 to April 2014 he was was involved in the provision of inappropriate advice to clients and also involved in the failure to provide one client with a written statement of advice.

ASIC found that he implemented a “one size fits all” advice strategy that

did not tailor advice to clients’ personal and financial circumstances; and

led to clients being over insured with inappropriate level of premiums.

ASIC also found he had

made one misrepresentation concerning tax savings; and

not be competent to provide financial services.

ASIC Deputy Chair Peter Kell said, ‘Advice needs to be tailored to the client’s needs and circumstances, and an advice provider must not lose sight of the needs of their client.’

His behavior was reported to ASIC in May 2014.

A customer remediation process was undertaken and 29 former clients were paid a total of $1,127,543 made up of advice fees, refunds of premiums for inappropriate advice and market loss relating to investments.

Background

This outcome is a result of ASIC’s Wealth Management Project. The Wealth Management Project was established in October 2014 with the objective of lifting standards by major financial advice providers. The Wealth Management Project focuses on the conduct of the largest financial advice firms (NAB, Westpac, CBA, ANZ, AMP and Macquarie).

ASIC’s work in the Wealth Management Project covers a number of areas including:

Working with the largest financial advice firms to address the identification and remediation of non-compliant advice; and

Seeking regulatory outcomes, when appropriate, against licensees and advisers.

ASIC listed more than 20 named advisors who have been banned.

ASIC launches new digital toolkit to help Australians navigate financial advice

A new online toolkit developed by ASIC’s MoneySmart will enable Australians to better understand and navigate the financial advice process.

ASIC’s MoneySmart Financial Advice Toolkit is available on ASIC’s MoneySmart website.

ASIC’s MoneySmart Financial Advice Toolkit is a free educational tool that breaks down the complexity around the financial advice process. It will assist consumers with their research and help them evaluate the financial advice they receive.

ASIC’s MoneySmart Financial Advice Toolkit provides an overview of the financial advice process and gives impartial guidance on:

Identifying financial goals and advice needs;

Tips on choosing an adviser;

Preparing to meet a financial adviser;

Understanding your Statement of Advice; and

Reviewing your financial situation.

Consumers can use the toolkit to create a customised ‘to do’ list which they can modify to suit their personal financial needs. The toolkit also includes links to ASIC’s Financial Advisers Register where consumers can check a financial adviser’s credentials – their licence, authorisations, experience and qualifications, and whether they have ever been banned or disqualified from providing financial services.

‘Australians face major financial decisions throughout their lifetime, many of which can be complex and confusing. Yet only about one in five Australians obtain financial advice. ASIC recognises the value that quality advice can deliver and wants to see this increase,’ said Mr Peter Kell, ASIC Deputy Chairman.

‘ASIC’s new toolkit is a practical resource to help Australians assess the quality of the advice they receive and make better financial decisions.’

The resource is a new digital tool that complements and supports ASIC’s regulatory and enforcement work in the financial advice sector and is designed to improve demand-side capability at critical financial moments.

Background

ASIC is the Australian Government agency responsible for financial literacy, consistent with its strategic priority to promote consumer confidence and trust in the financial system. Financial literacy is about having the knowledge, skills, attitudes and behaviours to make good financial decisions.

ASIC leads and coordinates the National Financial Literacy Strategy, which sets out a national framework for financial literacy work in Australia. The Strategy highlights the importance of providing people with tailored resources and tools, and of responding to the financial issues facing vulnerable sectors of the community. People experiencing high financial stress and crisis are identified as one of a number of priority audiences in the National Strategy.

ASIC’s MoneySmart website provides impartial and trusted financial guidance and tools to support informed financial decision-making for all Australians.

ASIC cancels credit licence of Rent To Own Appliances

ASIC says it has cancelled the Australian credit licence of S & S Enterprises Pty Ltd, trading as appliance rental business Rent To Own Appliances, after ASIC found it had entered into credit contracts where it charged consumers an annual interest rate higher than the 48 per cent maximum allowable under the National Credit Act.

ASIC found that Rent To Own Appliances charged consumers an effective rate of interest as high as 208 per cent.

In response to ASIC’s concerns, Rent To Own Appliances has agreed to stop collecting payments on all current contracts and to allow consumers under these ‘rent to buy’ contracts to keep the goods being purchased under the contracts.

ASIC Deputy Chair Peter Kell said, ‘Credit licensees must understand their obligations under the law and take compliance with those obligations seriously. This includes understanding the limits in the law about maximum interest rates which they can charge consumers.

‘As this case demonstrates, ASIC will remove those licensees from the industry which fail to meet their obligations under the law’.

Rent To Own Appliances has agreed to maintain its membership with an external dispute resolution scheme, the Credit & Investments Ombudsman (CIO), for a period of at least 12 months after its’ credit licence is cancelled.

Consumers who entered into a contract with Rent To Own Appliances and have any questions should contact Rent To Own Appliances on (03) 5964 6512 or 0433 585 130 to discuss the matter. Any consumer who is not happy with Rent To Own Appliances’ response should contact CIO on 1800 138 422.

Background

Rent To Own Appliances’ credit licence (credit licence number 392764) was cancelled with effect from 26 October 2016.

A ‘rent to buy’ contract is an arrangement where you agree to purchase an item (for example, a fridge or television) by ‘renting’ that item for a set period of time. You make regular payments, for example, every month, over the agreed period (say 3 years). Under the terms of the agreement, you are not actually hiring the goods but you are making a commitment to buy them. At the end of the rental period, you own the goods.

Rent to buy contracts are treated under the law as credit contracts and have a maximum allowable annual interest rate of 48 per cent. For more information, refer to the Rent to buy factsheet on ASIC’s MoneySmart website.

Rent To Own Appliances entered into credit contracts with consumers for furniture and household appliances. It operated a website (www.renttoownappliances.com.au) and traded from Lilydale in Victoria.

CommSec pays $200,000 in infringement notice penalty

ASIC says Commonwealth Securities Limited (“CommSec”) has paid a penalty of $200,000 to comply with an infringement notice given to it by the Markets Disciplinary Panel (“MDP”).

The MDP had reasonable grounds to believe that CommSec contravened subsection 798H(1) of the Corporations Act by reason of contravening rules 2.1.3 and 3.3.1 of the ASIC Market Integrity Rules (ASX Market) 2010.

Rule 2.1.3 generally requires a market participant to have appropriate supervisory policies and procedures to ensure compliance with the market integrity rules.

Rule 3.3.1 generally prohibits a market participant from entering into a market transaction for a client, and from allocating a market transaction to a client’s account, except in accordance with the instructions of the client or of a person authorised by the client.

No instructions from client

On 25 March 2014, CommSec received formal notification of the death of one of its clients, who held two accounts with CommSec — an equities account and a margin loan account. At that time, CommSec failed to apply a holder record lock to either of the accounts.

Between 25 March 2014 and 14 October 2014, CommSec entered into 59 market transactions on behalf of the deceased client on the instructions of a family member of the deceased client through CommSec’s online trading portal. Although the family member was authorised in relation to trading on the margin loan account in the event of a margin call, the family member was not authorised to provide instructions to enter into any of the market transactions. CommSec allocated the market transactions to the deceased client’s accounts.

The MDP was satisfied that CommSec entered into the market transactions for the deceased client, and allocated them to the deceased client’s accounts, without the instructions of the deceased client or of a person authorised by the deceased client.

Inadequate supervisory policies and procedures

During the relevant period, CommSec’s deceased estate area were in the process of undergoing an internal restructure. In October 2014, CommSec became aware that the restructure had resulted in a backlog of deceased estate work involving failures to apply holder record locks to a number of accounts of deceased clients, including the deceased client.

The MDP was satisfied that, although CommSec had written deceased estate policies and procedures designed to prevent unauthorised trading on deceased client accounts, they were not properly implemented and integrated into the business or appropriately monitored.

The compliance with the infringement notice is not an admission of guilt or liability, and CommSec is not taken to have contravened subsection 798H(1) of the Corporations Act.

Cash Converters to pay over $12M following ASIC probe

Following an ASIC investigation, payday lender Cash Converters will refund $10.8 million to consumers who received small amount loans under approximately 118,000 small amount credit contracts. Cash Converters has paid a $1.35 million penalty following the issuing of infringement notices by ASIC.

ASIC has agreed to accept an enforceable undertaking from Cash Converters following concerns that, in respect of small amount loans processed via its online website at www.cashconverters.com.au, Cash Converters failed to make reasonable inquiries into consumers’ income and expenses, particularly in situations where the small amount loan was presumed by the credit legislation to be unsuitable.

In addition, ASIC had concerns that Cash Converters did not take reasonable steps to verify consumers’ expenses in accordance with its responsible lending obligations. Instead of assessing the actual expenses recorded in a consumer’s bank statements, Cash Converters applied an internally-generated assumed benchmark that had no relationship to the real expenses of the individual consumer.

For the small amount loans that were likely to be unsuitable because of the consumer’s circumstances, ASIC was concerned that Cash Converters failed to assess the loans as unsuitable for the particular consumers and subsequently entered into them in breach of the credit legislation.

Cash Converters has paid penalties totalling $1.35 million following the issue of 30 infringement notices by ASIC, under the National Consumer Credit Protection Act 2009 (National Credit Act), where ASIC had reasonable grounds to believe that Cash Converters failed to assess small amount loans as unsuitable, and entering into those unsuitable loans, when the loans were presumed to be unsuitable under the credit legislation.

Under the Enforceable Undertaking accepted by ASIC, Cash Converters is required to:

refund eligible consumers $10.8 million in fees through a consumer remediation program overseen by an independent expert who will report to ASIC; and

engage that same independent expert to review its current business operations and compliance with the consumer credit regime and report to ASIC

‘ASIC is seeking to protect financially vulnerable consumers, many of whom are recipients of welfare payments, from falling victim to unsuitable payday loans.” said ASIC Deputy Chairman Peter Kell. “Payday lending is a high priority area for ASIC, and we will continue to pursue lenders who do not follow their responsible lending obligations.’

Consumers who had two or more small amount loans in the 90 days before taking out another small amount loan through Cash Converters’ website during the period 1 July 2013 to 1 June 2016 should expect to be contacted in due course with information about their refund.

Consumers will no longer be charged direct debit fees for payday loans

Following an independent review of payday lending laws, ASIC has taken steps to ensure consumers are not charged direct debit fees when taking out a small amount loan.

This new rule will apply to any payday loan provided from 1 February 2017. It is facilitated by the repeal of interim ASIC Class Order [CO 13/818] Certain small amount credit contracts.

Loans that commence before 1 February 2017 will continue to operate under the existing rules and third party direct debit fees will be able to be charged on those loans.

Background

On 1 July 2013, restrictions were introduced for small amount credit contracts (SACCs) that limit the fees and charges that consumers can be asked to pay. Cost caps apply to establishment fees and monthly fees (both of which are subject to maximum limits based on a percentage of the adjusted credit amount), default fees and government fees and charges.

In response to a Government request, ASIC made Class Order [CO 13/818] on an interim basis to allow the charging of direct debit fees by third party companies in certain circumstances.

In August 2015, to fulfil a statutory requirement under the National Credit Act, an independent review panel (the Panel) was established by the Government to examine and report on the effectiveness of the laws relating to SACCs. Two phases of consultation were undertaken during the course of the review, with the Panel considering written submissions together with holding roundtables and bilateral meetings with interested stakeholders.

The Panel’s final report released in March 2016 included a recommendation that “Direct debit fees should be incorporated into the existing SACC fee cap”. The then Minister for Small Business and Assistant Treasurer, The Hon Kelly O’Dwyer MP, when releasing the final report, stated that, “The Government is supportive of ASIC acting on this recommendation when it considers it appropriate”.

As a result, ASIC has now repealed [CO 136/818] and after consulting stakeholders has provided a 12 month grandfathering period to ensure a smooth transition for both consumers and industry. This means that for loans which commence from 1 February 2017, third party direct debit agencies will no longer be able to charge consumers a fee when processing a repayment on that loan. Third party agencies, who have entered into an agreement with consumers for a loan which commenced prior to 1 February 2017 will continue under [CO 13/818] to be able to charge consumers a fee when processing a repayment on that loan.

Further information and relevant documents:

Class Order [CO 13/818]

ASIC Credit (Repeal) Instrument 2016/1067 (registration pending)

Media release of the Hon Kelly O’Dwyer MP, the then Minister for Small Business and Assistant Treasurer: Small amount amount credit contract report released (19 April 2016).