ASIC clamps down on misleading lender advertising and unlicensed mortgage brokers

ASIC is “actively monitoring” the way lenders advertise their mortgage products as part of a clampdown on misleading advertising of financial products.

And adding more weight to its role as corporate and credit watchdog, ASIC will begin conducting surveillance of mortgage brokers from September 1.

Since July 2010 ASIC has forced 117 advertisers of financial products – some of them mortgage products – to either withdraw or modify their advertising in response to concerns about potentially misleading or deceptive conduct.

Lenders that have been forced to change the way they advertise their products following ASIC concerns include Rams (in relation to the advertised interest rate on its high-interest savings product) and Resi (in relation to the comparison rate on its home loan offering). Both lenders took action to address ASIC concerns.

Most recently ASIC forced GE Money to change the wording on online advertising of personal loans and debt consolidation following concerns that the advertising was potentially misleading.

The GE Money advertisements stated that consumers could borrow "from $3,000" with an interest rate "from 13.99% p.a".

However, the fine print disclosed that only loans over $20,000 were eligible for an interest rate starting from 13.99% p.a. For loans of $3,000, interest rates started at 15.79%, and could be much higher. GE has subsequently changed the wording to more clearly disclose the applicable interest rate.

“Market participants should be aware that if they don't adhere to their legal obligations when promoting financial products, ASIC will take action,” a spokesperson for ASIC told Property Observer.

“ASIC wants to encourage advertising that is clear, accurate and balanced."

In addition to a number of ASIC's stakeholder teams proactively monitor financial product advertising from deposit takers, credit providers and insurance providers, ASIC will also be monitoring advertising specifically targeted at regional areas in addition to our monitoring of national advertising.

In February, ASIC released a new “good practice” guide for advertising financial products.

 “Advertisements for financial products should give a balanced message about the returns, benefits and risks associated with the product. Benefits should not be given undue prominence compared with risks,” the guide says.

The guide highlights that warnings, disclaimers, qualifications and fine print in advertisements should be given “sufficient prominence to effectively convey key information to a reasonable member of the audience on first viewing of the advertisement”. 

With regard to fees and costs, ASIC says advertisements should give a “realistic impression of the overall level of fees and costs a consumer is likely to pay, including any indirect fees or costs”.

Separately from its monitoring of financial products advertisements, ASIC will also launch a surveillance campaign between September and December 2012 designed to identify entities engaging in consumer credit activities without a licence.

The surveillance campaign is part of ASIC's existing role as credit regulator, which it assumed in June 2010 with all mortgage brokers required to hold a credit licence or be licensed as credit representative under a licence holder from January 1 2011 and abide by responsible lending obligations under the National Credit Act.

Individuals or businesses who engage in credit activities are required to hold an Australian credit licence, or be an authorised representative of a credit licence holder.

In July, ASIC cancelled the Australian credit licence of mortgage broker and aggregator Pump Financial Pty Limited, of Redcliffe, Queensland, after it was found it failed to hold membership of an approved external dispute resolution scheme (EDR) – one of the requirements of licence holders.

Pump Financial Pty Limited has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC's decision.

ASIC commissioner Peter Kell says the campaign is designed to identify traders who applied for an Australian credit licence, but withdrew their application, or had it refused.

"By applying for a licence, they indicated an intention to engage in credit activities. Unless the trader is an authorised credit representative, or subsequently obtains an Australian credit licence, they cannot engage in credit activities," he says.

"Anyone caught engaging in unlicensed credit activity may face criminal prosecution or be banned from obtaining a credit licence.

"We want to ensure consumers feel confident when dealing with lenders, brokers and other credit providers and one way to do this is by weeding out players who aren’t playing by the rules."

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger writes on real estate, specialising in commercial and residential property. Larry is based in Melbourne.


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