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Speaking after an MFAA breakfast briefing on the subject, Haron warned that brokers should be putting referral agreements in place with key partners before rules regulating referrals come into force on 1 October.

“The National Consumer Credit Protection Act impacts on referrers, as ASIC’s view is that they are an intermediary,” he told Broker News. “However, ASIC have allowed exemptions to referrers so that they do not have to obtain an ACL or become a credit representative to continue referring.”

Brokers and lenders must, by 1 October, have an agreement with referrers not already covered by the credit regime, explains Haron This must specify the conduct in which the referrer can engage. Licensees must also keep a register of referrers, which includes the date and the means by which the agreement the referrer was entered into, and the date of commencement of referrals.

There are also restrictions around the practice of referring, he adds: namely, that a referrer must give the information to the broker or lender within five business days after advising the customer, the broker or lender must contact the consumer within 10 business days of receiving the referral, and the broker or lender must advise the consumer if the referrer will receive a commission for the referral.

Additionally, referrers must not conduct business by contacting people from non-standard business premises – this, Haron warns, may include open houses.

“This issue with open houses revolves around whether there is sufficient notification to the client that his or her details may be passed on – even if he or she has put his or her name on a contact list and if there’s a note at the bottom saying their details may be passed on.

Clarification is currently being sought from ASIC on this question.

Finance Solutions’ Raymond Weir, in concert with an informal group of brokers involved in the small business and private mortgage market, has put forward comment as part of the Phase 2 consultation, which ended last week.

Weir argues the Trade Practices Act, the ASIC Act and state fair trading laws have protected small business borrowers in the past, and the incidence of complaints from this type of borrower has been negligible. They can also avail themselves of remedies including industry codes, such as the Banking Code of Practice.

“Further government regulation of credit for small business borrowers is not sought by any stakeholder or consumer advocate and is unwarranted,” the submission states. “Any further regulation of credit for small business should be limited to requiring the credit provider or intermediary to hold adequate PI insurance and be a member of an EDR.”

Weir argues further regulation could have negative effects on the sector. “If the government was to place a further layer of regulation upon credit for small business, similar to those applicable to personal borrowers, it is likely to restrict the availability of small business credit,” Weir said.

Weir argues that persons owning and operating a small business either as a Sole Trader, Partner or Company Director are to his mind sufficiently experienced and knowledgeable to protect their own interests when obtaining credit.

He said further regulation was likely to further restrict already depleted competition in the banking sector, as non-bank lenders – experienced in meeting the often special needs of small business borrowers – may be forced out of the market, as they face difficulties in meeting extensive compliance standards.

The provision of “start-up” finance, often secured by the family home or an investment property, is better served by more flexible and less risk averse non-bank and private lenders, he adds.

In its response to the government’s second phase of National Credit Reform, the MFAA has argued in a submission to Treasury that there is no evidence of poor lending practices at the margin in the small business sector, as was the case in the residential sector.

“Unlike residential mortgages, lending to small businesses requires greater scrutiny by lenders and brokers,” MFAA chief executive Phil Naylor said. “We are concerned regulation would restrict the availability of credit to small businesses which will be of significant detriment,” he added.

The position supports that of a group of WA brokers headed by Finance Solutions’ Ray Weir, which also argued in a submission to Treasury that regulation would impinge the ability of small busines to access credit.

The MFAA’s submission states that the industry has already undergone major changes as part of the first phase of NCR, and that “the combination of these reforms will have a significant affect on the credit market, even in respect of credit which is not regulated by the NCCP Act”.

The industry body said time should be given to see how these already legislated initiatives work in practice, and that sufficient regulatory tools are now available to protect consumers and small business and drive out predatory lenders.

The submission goes on to say that regulation is a “two-edged sword” that could impact borrowers and reduce commercial flexibility and innovation, and that there was no evidence borrowers were seeking greater protection.

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