Mortgage brokers will face a stringent licensing regime under a sweeping reform of the consumer credit market.
New South Wales Fair Trading Minister Linda Burney released a draft bill yesterday that aims to uniformly regulate the growing industry on behalf of all state and territory governments.
"A key aspect of the proposed new regulatory scheme is stringent licensing requirements that aim to rid the industry of the bad apples that have given responsible brokers a bad name," Burney said.
Similar to the regulatory regime for financial planners, brokers will need to have a minimum level of skill and carry out ongoing training to qualify for a licence.
They can be fined up to $22,000 if they are found to be operating without one.
They will be banned from charging upfront fees over property to secure new business and made to disclose fees to potential clients.
Brokers will be required to belong to an ASIC-approved external dispute resolution scheme and take out professional indemnity insurance. A compensation fund for uninsured claims or insolvency is also proposed.
Consumers who apply for a reverse mortgage will receive improved protection. The new measures will be enforced via a system of state-based license schemes.
At present, New South Wales, Victoria and the Australian Capital Territory regulate brokers through disclosure and finance broking contracts, while Western Australia relies on educational requirements and a mandatory code of conduct.
Queensland is developing a mandatory code of conduct to address problems in the industry.
The Mortgage and Finance Association of Australia, which has lobbied for national legislation since 2002, operates on a self-regulatory model and bans members for misconduct.
A recent survey by accounting peak body CPA Australia found people who use mortgage brokers borrow up to 10 per cent more than the average home buyer.
The deadline to comment on the draft bill is February 15, 2008.
