We regularly receive calls looking for help with all types of Vendor Finance issues. Recently quite a few questions have come up, after studying old vendor finance educational material and have come as a bit of a shock.
The Focus was Different Back Then
These questions have highlighted just how much our Industry has changed since we started back in 2003. Trouble is, if these new Industry entrants were to follow some of the information provided in this old educational material, they could set themselves up for a serious fall.
Not that this old educational material is to blame. That would be like blaming an old street directory for getting you lost today. Information and rules change, i.e. the educational material was likely right at the time.
A recurring theme of the enquiries we get revolve around Rent To Buys (Lease/Options). Most callers realise RTB’s are less regulated than other forms of vendor finance and their questions often reflect an attitude that’s only focused on what profit they can make out of the deal. And, how easy is it to throw the buyer out if they stop paying?
More Focus On the Interests of the Consumer
Sure, they’re valid questions but with the introduction of the National Credit Code (NCC), the Finance Industry as a whole now recognises that finance brokers, including vendor finance brokers, must research their potential borrower’s ‘requirements & objectives’ and abide by the NCC’s Responsible Lending requirements.
And while RTB’s aren’t regulated by the NCC, all the Vendor Financiers I talk to, who still use RTB’s, tell me they operate with the borrower’s interest as a high priority, i.e. in most cases they check Requirements & Objectives and qualify their borrowers/buyers according to Responsible Lending.
Heed the Judge’s Advice
So, if you do stumble across some old educational material and decide to become involved with RTB’s, be wary of some of the information therein. For example, it would be very sensible to take note of a Western Australian court decision that put the following restrictions on RTB providers in WA:
- Do not claim that you “buy houses” unless you intend to acquire a freehold title;
- Do not claim you are the owner of properties you are selling unless you are the owner;
- RTB arrangements are not immediate sales of the property and this must be disclosed;
- Do not say to buyers that they can purchase without a bank loan unless there are reasonable grounds for this;
- Accurate and complete statements of the money payable by prospective buyers under the RTB arrangement must be provided;
- RTB promoters must disclose what revenue they will attain from the arrangement.
Learn about a possible alternative to RTB’s here.
Clients First – Always.