We previously published an article regarding ASIC’s decision to take action in relation to unlicensed introducers.
The proceedings are a timely reminder that lenders should regularly review their origination arrangements with referrers, brokers and aggregators to ensure compliance with the law (both the agreements and what happens in practice).
When it comes to referral arrangements with unlicensed referrers, it is crucial not only that referral agreements comply with the law, but also that what happens in practice complies. Lenders should conduct regular audits of the process unlicensed referrers are following and the information they are providing. We also recommend at least yearly communications with unlicensed referrers to remind them of what they can and cannot do.
Many lenders structure their referral arrangements to comply with the reg 25(5) exemption. Under this exemption, an unlicensed referrer passes on customers’ details to the lender when such referral is incidental to the referrer’s business.
As a reminder, some of the key requirements for complying with the reg 25(5) exemption are set out below.
Reg 9AB(2) requires the licensee to maintain a register of all of the referral agreements it has in place. The register must contain:
- the referrer’s name and contact details;
- the date and means by which the referrer was advised in writing of the way in which the referrer may engage in credit activities under the agreement; and
- the day on which the referrer first gave the licensee a consumer’s name and contact details pursuant to the agreement.
Under reg 9AB(4), the licensee must make the register available to ASIC on request.
Reg 9AB(5) requires a licensee to contact the referred consumer within 10 business days of receiving the referral.
Licensees should document a standard script that is used when contacting a consumer by phone. There are certain disclosures that must be made under the NCCP Regulations.
If the customer is contacted by letter or email, the letter or email must disclose the name of the referrer and state:
- that the licensee is contacting the consumer as a result of being provided with their contact details by the referrer; and
- the referrer may receive a financial benefit or payment.
Under reg 9AB(6), the licensee is required to identify itself and begin the discussion with the referred consumer with words to the following effect:
- I am contacting you because we have been provided with your contact details by [name of referrer]. Can you confirm that you agreed with [name of referrer] to have us contact you?
- (When a payment of commission may be given to the referrer) Before we continue, I would like to let you know that if you take up any of our products or services, [name of referrer] may receive the following financial benefits: [insert brief description]. Are you happy to continue this discussion?
Brokers and aggregators
Lenders should also ensure that their broker and aggregator agreements are up to date.
We have made significant changes to our standard broker/aggregator agreement terms, in particular in relation to payment of commissions to ensure compliance with the conflicting remuneration rules. We have made other changes to address other developments in the industry.
Although updating agreements with aggregators can be time consuming, many changes can be effected by a variation agreement which can support the interests of both lenders and aggregators.