A new law commencing on 1 November 2018 prohibits arrangements where introducers are provided with a delivery rate to which introducers can add a margin to determine the borrower rate – subject to some exceptions. Lenders, brokers, and other introducers need to ensure that their commission arrangements do not breach these rules.
The ASIC Credit (Flexible Credit Cost Arrangements) Instrument 2017/780 inserts new provisions into the National Consumer Credit Protection Act 2009.
The new law prohibits lenders directly or indirectly entering into a flexible cost arrangement defined as an arrangement under which both of the following apply:
- the benefits paid to an introducer are determined in whole or in part by the interest rate; and
- the introducer or an associated person can set or influence the rate.
In addition, if there is a flexible cost arrangement, lenders must not pay introducers a fee which exceeds the origination/administration fees agreed prior to the introduction of the customer. Lenders must keep a record of the basis for determining these fees for at least seven years.
Variations to interest rate influenced by introducers are not prohibited:
- which reduce the interest rate up to 2% per annum from the base rate quoted by lenders (being a rate set prior to the introduction of the borrower); or
- where benefits paid to introducers are the same as would be paid if the base rate applied; or
- where benefits are paid to:
- directors or employees of the lender / lessor; or
- related body corporates; or
- directors or employees of related body corporates.
The prohibition does not apply to home loans. However, home loans is defined in the Instrument as meaning:
- loans 100% used to purchase residential property; or
- loans to refinance loans wholly or predominantly made to purchase residential property.
As a result all other regulated loans will be subject to the restriction. For example, the prohibition would apply to loans secured by residential property:
- only partly used to purchase a home (ie there was some money out for personal, domestic, or household purposes);
- only partly used to refinance loans wholly or predominantly used to purchase residential property (ie there was some money out for personal, domestic, or household purposes).
This is a short summary of reasonably complex provisions. Businesses who may be affected by this prohibition should seek expert advice.