You may have noticed in the media recently, even the big players in the home lending industry have been running foul of the Responsible Lending requirements of the National Credit Code. ASIC is obviously in the mood to show just how important Responsible Lending is.
Here are four Responsible Lending requirements you need to cover when qualifying a vendor finance buyer.
One quick caveat though. I’m not a solicitor, so I suggest you check all the following out with your relevant professional.
The National Credit Code “requires a licensee to give its credit guide to a consumer. The credit guide has information about the licensee and some of the licensee’s obligations under the Act.”
If you are the title holder of a residential property, selling the property to a consumer, it’s unlikely you’ll need to be a licensee, i.e. an Australian Credit Licence holder. Therefore, in this case, it’s unlikely you’d need to supply the prospective buyer with a credit guide.
The National Credit Code “requires a licensee to give a quote before providing credit assistance to a consumer. The quote must set out the maximum amount the consumer will be required to pay to the licensee. The licensee must not charge more than that amount.”
Again, if you are the title holder, selling to a consumer, it’s unlikely you’ll need to be licensed and therefore it’s unlikely you’d need to supply a quote.
Inquiries and Verifications
Unlike both previous requirements, the National Credit Code requires all credit providers, including title holders selling the own property with a vendor finance credit contract to, “before entering ,,,, a credit contract, to make an assessment as to whether the contract will be unsuitable. To do this, the licensee must make inquiries and verifications about the consumer’s requirements, objectives and financial situation. The licensee must give the consumer a copy of the assessment if requested.”
The particularly important part of this requirement is, “the licensee must make inquiries and verifications about the consumer’s requirements, objectives and financial situation.” It’s this requirement that even the big players in the home loan industry have been having trouble with.
- Make inquiries about the potential buyer’s requirements, objectives and financial situation, and
- Verify the information you receive from these inquires, and
- Keep this paperwork for 7 years.
The National Credit Code “requires a licensee, when providing credit assistance to a consumer in relation to a credit contract, to give the consumer a document that discloses certain information (for example, the commission the licensee is likely to receive).”
Clearly this requirement does apply to a Vendor Finance Broker, ‘standing between’ a seller and a buyer but not to a title holder selling their own property.
Vendor Finance Management (VFM) clients have their vendor finance transactions administered in accordance with the NCC. To assist with their Responsible Lending obligations, VFM will now provide our Application (Inquires) and Qualification (Verification) Packs free to all existing and new clients. These products sell for $125 and $110 respectively. If you’d like to experience the convenience of out sourcing your transaction administration and fine tune your Inquires and Verification procedures, VFM can help.