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BFCSA investigates fraud involving lenders, spruikers and financial planners worldwide.  Full Doc, Low Doc, No Doc loans, Lines of Credit and Buffer loans appear to be normal profit making financial products, however, these loans are set to implode within seven years.  For the past two decades, Ms Brailey, President of BFCSA (Inc), has been a tireless campaigner, championing the cause of older and low income people around the Globe who have fallen victim to banking and finance scams.  She has found that people of all ages are being targeted by Bankers offering faulty lending products. BFCSA warn that anyone who has signed up for one of these financial products, is in grave danger of losing their home.


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BFCSA: Argument of Agency 2011 Version. Given to FOS and ASIC July 2011

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Ostensible Authority:

 1.       There existed strong Ostensible Authority links directly between Introducers and Lenders.   The links are as follows:

a.       Introducers were provided with database access to track their approvals.

b.      Introducers were provided with stationary bearing the Lender Logo’s.

c.       Introducers were provided with Lender material to enhance sales.

d.      Emails between Loan Processing Officers and Introducer ensured direct communication between the Lender and its own agent: the Introducer.

e.      Lenders employed Business Development Managers ("BDM’s ") to teach Introducers the system and how to maximise loan approvals....driven by a very high commission structure provided by the Lenders.

f.        Emails between BDMs and Introducers paint a clear picture of loan acceptance practices.

g.       ABN ‘for a day” became standard industry practice and accepted by the Lenders

h.      The Lenders were at all times the creators of the system and at all times “in control” of operations retaining the power to change bad conduct via warranties and agreements and the AFS licensing system.

2.       The Lenders sent their clients a universal “Welcome as a client” letter.

3.       The only contract signed at the relevant time, by both Lender and Borrower was the Mortgage Contract.  Neither the Introducer, nor SP was party to this document, other than as a delivery conduit and on occasions, witnessing of signatures.

4.       The only contractual arrangement was between the Lender and the Borrower.

5.       The STRUCTURE was completely authorised and created by the Lender.

6.       The Argument of Agency is clearly on the side of the Borrower as client of the Lender according to the Courts.

7.       The Lender contracted with the Service Provider (SP) to hire “Introducers” (formerly known as Brokers) to spruik new persons to become clients of the Lender.

8.       The Service Provider provided warrants to the Lender as to conduct etc, and as the Nine Judges suggested, the Lender ought to be exercising those warrants.

9.       The Lender provided commissions to the SP, who then paid commissions to the Introducer as the Lender intended.

10.   The Lender manufactured the products known as Low Doc Loans and created the legal contracts, the forms, the stationary and the LOGO. 

11.   The Lender employed BDM’s to scrutinise the activities of the Introducers, as a safety valve in case the SP’s were dishonest or negligent.

12.   The LOGO gave comfort to the potential client that they were dealing with a well known and hopefully reputable brand of Lender – hence the LOGOS to encourage consumer trust.

13.   The Lender provided commissions to facilitate an overflow of new clients for the bank.

14.   The Lender provided the services of the Business Development Manager (“BDM”) to ensure direct communication between the Lender and the Introducer.

15.   The BDM assisted the Introducer in preparing paperwork (“LAF’s”) including advice and tips for the Lender’s potential client to ensure a greater volume of business approved.

16.   The BDM was a direct employee of the Lender – a bank officer.  The BDM was required to call into the office of the Introducer on a weekly basis.

17.   BDM’s established regular contacts with the Introducers for the purpose of boosting Low Doc Loans as a favoured product.  BDM’s were required to teach Introducers how to use the lending facility and prepare applications in a favourable light.

18.   Loan Application Forms ere FAXED by the Introducer to the Lenders.

19.   Introducer’s generated public interest in mortgage loans and at times MV loans as a carrot to generate new inquiries.  As the name suggested the Introducer would then “introduce” the Inquirer to the Lender as a potential Lender client.

20.    The repetition of the above activities suggests a collusive nature of dealing between Lenders, Mortgage Managers, Special Providers and Introducers.  The patterns are disturbing.  Dealing with each case as an individual activity denies the complainant of a fair assessment of what is now apparent to us: systemic issues in the selling and promotion of Low Doc lending.

21.   Lenders have constantly referred to “standard industry practice,” in reference to these serious allegations.

22.   Lawyers of the Lender prepared and then posted the Mortgage Contract to their Client

23.   Borrowers were not given advice as to risks and were not required to attend an office of the Lender for this crucial stage of Lender/Borrower agreement.

24.   Low Doc Loans required business people with ABNs who could produce tax returns from a minimum of two years prior to the application.  Had the Lender telephoned the client to verify financial details, the truth would have immediately been discovered and the loan declined.

25.   The Lender made a corporate decision to hire Introducers knowing the high potential for fraud and forgery to the client.

26.   The Lender made a corporate decision to arrange for SP’s to verify loan details and both failed in their duty to make a phone call to the potential client or indeed ask for financial documents such as pay slips etc.

27.   The Lenders owed a duty of care to clients and failed in their duty to do so.

28.   Lenders knew the risk that had been inherent in these types of loans during the previous decade.

29.   Lenders knew the age of their clients would prevent them from paying off such a large loan.

30.   Lenders knew the only property owned at the time of signing was their own residential home and would therefore place them at risk of huge losses.

31.   Lenders knew this loan was classified in law as “asset lending.”

32.   Lenders knew the purpose of the loan was specifically for investment and knew of the inexperience of the client and the risk was problematic for Lender and Borrower.

33.   Lenders knew the risks associated with using the “Broker Model.” 

34.   Lenders ignored the dangers for themselves and their clients and any members of the public who may have been related to the victims.

35.   There are documents in existence known as “Confirmation of Conversation” forms and also Audits on client files.  These documents were created by the Lender, knowing the duty owed to their client, to demonstrate “prudent lending.”

36.   Introducers had access to a system called FLEX and were also given access to bank databases to track the progress of the loan approval.  The FLEX system also provided details of their volume commissions and quotas set by the Lender and its’ SP.

37.   Introducers were also given access to Lender “service calculators” and online Loan Application submissions direct to the Lenders.

38.   The Lender/SP Agreements attempted to protect the Lenders in the event of fraud, establishing the knowledge and expectation of such an activity, yet created as a weapon to cast blame on others.  In other words, a cleverly constructed document to gather all the profits and retain zero liability for criminal conduct.



39.   The Mortgage Contracts have been deemed by the Courts as being unjust and the Borrowers being identified as the client of the Lender.

40.   The evidence obtained to date points to Maladministration in Lending on a grand scale due to the Authority given by the Lender to the Introducer to gather in new clientele which the Lenders stood to gain enormous profits from.

41.   The most over-represented Lender in terms of complaints to date is well known to FOS.






Target Market - ARIP’s

Business Development Managers: “BDM’s”



The “Business Product” - Low Doc Loans

Attempt to hide Client Relationship

Provision of all Materials

Use of LOGOs

Use of database

Provisions of all contracts, forms and agreements



Sub Prime Lending

Agency Agreements

Subsidiaries and Partnerships

Never to Phone

No Copies

Inequality of Information to Consumers

Communication between BDMs and Introducers



ABN for a day scam




Never to Phone

No Copies

Affordability – Ability to repay the loan



Maladministration in Lending

Failure to report to Regulatory Authorities

Evidence of a Conspiracy to Defraud

Evidence of Collusion between Lenders

Intention to deceive the public and avoid liability




 The Argument of Agency: 

 Firstly, on suggestion of the BFCSA Inc Committee, I wish to provide our own interpretation on the Argument of Agency. 

NINE JUDGES – Understanding the Model

In line with six verdicts by Nine Judges in Six recent and similar cases (2006 – 2011) in Four jurisdictions involving Four State Supreme Courts, the Lender contracted a Service Provider by way of detailed Agreements. 

Each Judge found in favour of the Defendants (the victims of these crimes).  Each Judge ordered that the mortgage be discharged within 30 days and the Title Deeds be restored to the home owner and, that there be no fees and charges now or in the future and held the Lender as being 100% responsible for the lack of prudent lending involved.

No apportionment of liability was passed onto the client of the lender.  One case went further to the Court of Appeal and three Judges, agreeing with the Trial Judge, were unanimous in their findings that favoured the original defendant.

Lenders aware of the higher risk of fraud

Lenders involved in Low Doc Lending were fully aware of a higher degree of risk of fraud and forgery and specific dangers in introducing Low Doc Loans to consumers.  Unsafe policies in the lending approval process caused loans across Australia, to be granted to people who would never, under prudent lending practices, be deemed as having an ability to afford loan repayments.

In at least two of these cases I developed a close relationship with the aggrieved parties with hands-on experience in collecting initial documentation leading to funding some of these cases, and the preparation of legal arguments.  I still have copy documents that were used as evidence in those trials.  My experience in these matters is well regarded.

The Broker Model

“The Lenders “ (in each of these cases) were also aware that the Service Providers and Mortgage Manager Companies would be hiring untrained Introducers to specifically “ introduce” new clientele to the banks….the sole purpose of utilising the “Broker Model.”

The Lenders received financial details and identification documents which only a prudent lender would understand, would lead to conclude that the intended customers of the bank could not demonstrate a valid ability to repay payments.  The LOANS in each case brought to trial, according to the Judges, should therefore have been declined.

The Lenders did not trust the “Broker Model” and knew the pitfalls.   Therefore, despite the known risks, Lenders hired Business Development Managers (“BDM”) to look after Lender interests.  The BDMs were essentially bank officers in the field and had regular face to face (and email) contact with the Introducers.

According to the Judiciary examining the raft of evidence against the Lenders, the Low Doc Product – primarily to be utilised as a loan offered to business people - ought never to have been offered to ordinary people on low-moderate incomes.

Some of the Judges expressed their thoughts of “how unusual a case” this was.  The reason for the “unusualness” became clear:  the victims of Low Doc Scams surviving on a pension or low income had zero funds to pursue a legal remedy through the courts.  A thought not lost, from inception, on the lenders involved.

As a social community issue, funds were gathered to take some of these cases to court, funded by interested consumer groups and state agency funding.  The Courts became an important venue for consumers to expose the bankers’ nefarious activities in a quest for justice.

Each of these cases involved fraudulent Loan Application Forms, no phone calls to clients, no regard for the purpose of the loan, no regard for ability to repay the payments, asset lending, no regard for the financial well-being of the clients of the lenders and no copies of the LAF delivered to the client.

Irrespective of who was named as the Broker/Introducer, the Courts found the victims were indeed the client of the lenders involved.

Some of the aggrieved were pensioners and others were struggling families on low to moderate incomes.  They were targeted by the banks due to their having a home as an asset:  in most cases their residential home was mortgage free.

The Judges also found the bank was privy to information regarding these practices which the clients were not privy to: an unfair playing field.  The most scathing of these comments were centered upon what the banks KNEW at the time of loan approval, namely:-

                The age of the persons as to ability to repay and in some cases

                Some were Centrelink recipients

                The correct income of the applicant

                The knowledge that the home was the only asset

                Lack of ability to repay the payments

                The ABN number was a recent invention and not in line with lending policies

                Additional information was pure nonsense and could not be relied upon.

                Borrowed funds would be used to pay back the bank with its own funds.

The higher risk of fraud in using the “Broker Model.”

The Audits on the Client Files would reveal the flaws.

No phone calls took place to verify the details with their own clients.

Regardless of the above, the loan officers on three levels, approved the loan applications.

In particular, the Loan Application Form (“LAF”) had been fraudulently dealt with by persons unknown without the client’s knowledge or authority: the inference being it could have been the bank officers themselves as they processed the loans and had produced several copies of the LAF, none of which were “identical.”   Universally, the victim defendants had never been given a copy of the signed LAF or other documentation, in line with what lenders admitted was “standard industry practice.”

The Judges found that ONE PHONE CALL to the client could have averted the tragedy for the victims.


The Lenders envisaged that the “secret LAFs” would never be discovered and strongly suggested an intention to deceive being that the Lender would then blame the Broker.  The Broker/Introducers had been taught by the BDMs on how to “handle the paperwork.”  The victims would never come into contact with the BDM, yet there was a direct relationship established between Lender and BDM.  

The BDM’s were employed by the Lender.

The Lenders set up the actual strategy in around 2000 and dubbed the entire process as being “standard industry practice.”   To achieve the aim of big volume business, the Lenders identified a “new market” that they universally dubbed ARIPs (Asset Rich and Income Poor).

Invitation industry seminars promoted by the banks, promoted the product known as Low Doc Loans and suggested the “new” target market:  the industry reference for new clients became ARIP’s.

By 2004, due to the high level of exaggerated incomes and other suspect loan processing activities, most banks and non-banks had abandoned the direct hiring of Brokers.  The lenders and their lawyers developed the “Broker Model” as a way of bringing in new “bank” clientele from the same source, yet minimizing risk for the bank.

Banks involved had been hiring Brokers on a lucrative commission basis.  The idea developed amongst Bankers, that if they hired a subsidiary company to become a licensed (AFS licence) Service Provider (“SP”), then the SP’s would hire the Brokers.  So, how could the banks pay the commissions and stay one-removed?  The banks paid commissions to the SP Company, who in turn hired the newly named “Introducers,” and passed the commission’s down- stream.


Banks created the commission structure, the Agreements between players, the target market, the forms to be utilised adorned with the banks’ LOGO’s.    The Model ensured the intended victims would never seek legal advice, never question the “integrity of the banks” by the use of the Logo.  More importantly, those who had finalised payments on their own home – a life-long achievement- could be tricked into parting with their Title Deeds for just three to six months: “try it and see.”

The victims had no idea these loans were thirty year loans and some of them were already 80 years of age or more.

The Brokers were told by the BDM’s that “unless you fudge the figures” you won’t make any money.  The banks maintained a guaranteed steady stream of new clientele by the use of Quotas.

These Lenders were after volume and had earmarked a “$50 Billion new market.”

For the Bankers, it was business as usual.  Low Doc Loans were the key.  The product was more expensive than a “normal” bank loan, twice as risky, yet sold to people who would never be able to apply for a cheaper loan of any kind. 

These cases are the tip of the iceberg.   The instances of “asset lending” are on a grand scale.

The victims did not walk into a bank and ask for a loan.  The entire structure was geared around elderly people being spruiked with a “new strategy” to earn a few extra dollars per year via investment plans.

No thought was given as to the financial risk of the likely clientele.

As described, Lenders outsourced management of lending to Service Providers (“SPs”) and then rehired the same Introducers, whom they employed previously, via the SPs, fully aware of the heightened risk of fraud to consumers. 

In essence:  Lenders wanted to continue a lucrative flow of clientele from this source, yet rid themselves of any risk of loss and in doing so transferred the risk of fraud and forgery onto the most vulnerable people in our community.

The Judiciary noticed various points which led them to their verdicts in favour of the victim.

So how many others are trying desperately to stop the Lender from taking ownership of his/her home. 

Each of the above “standard practices” would lead to imprudent lending practices and a complete lack of adherence to Bankers’ own lending policy guidelines.

All of the above was driven by greed and carefully crafted commission structures.  All commissions originated from the Lender.

How did these creators and masters of the universe (15 or more Australian Lenders) develop the same idea, same concept on the same day and then target the same group of people with the same lack of ethics? 

How did they develop the same forms, identically worded letters to clients on the same day?

How did they decide between themselves what would become “standard industry practice” AND then KNOW these activities were standard industry practice when questioned by authorities?


At times this structure followed up to five layers, all of which added to an evil intent on the part of the Lenders involved. 

As a manufacturer of the product, these same Lenders chose to blame their own customer for purchasing the faulty, risky and yet finely crafted Low Doc Loan product.

Warranties with the SP’s were set in place to protect the Lenders, not the consumers.  Therefore the Lenders anticipated fraud.  This paradigm shift in the way mortgages were handled knowingly placed all consumers of Low Doc Loans at risk of sub-prime lending practices.  ASIC acknowledged at the time they held grave concerns for consumer protection and cited predatory lending practices in the banking sector.


The Lenders engaged Service Providers to recruit untrained Introducers.  Lenders then employed BDM’s to entice “Introducers” to furnish their Lender with new clientele.

The targeting of pensioners and low income families and the misuse of the product known as Low Doc Loans could only be effective if handsome commissions flowed downwards from Lender to Service Provider and the untrained Introducer. 

Lenders set the “loan approval” QUOTAS as a requirement of banking and finance participation agreements.   

Maladministration in lending became obvious to the Judges, in the misuse of ABN numbers and in particular, the three levels of “lending approval process” being systematically abused.


The absence of any copies of documents such as signed Loan Application Forms (“LAF”) and other supporting forms also became “standard industry practice.”  The potential bank customer was rarely furnished with crucial copies of the document known as the LAF.  Only after demanding copies of these LAFs, were the fraudulent exaggerations of income and assets revealed.   

In some cases the number of children was also deliberately reduced without the customer’s knowledge or consent.   This practice became known in BDM circles as “tweeking.”   Parents with two children were marked down as one child........again without the knowledge or authority of the customer. 

Such blatant dishonesty in banking and financial products has so far led to three Federal Inquiries and specific cases being brought to court with public funding in four states.


Within this structure, involved members of the Australian banking sector made a corporate decision to NEVER phone the “client” as if they were the client of the Introducer.  The Judges were particularly critical of this activity and the knowledge the banks had at the time, including the regular audits on client files contained within the Agreements. 


The banks designed a “Confirmation of Conversation Form”, with very specific details on how income was to be verified.  Yet no phone calls took place.  One phone call on each of the cases would have revealed the fraud, prior to the funds changing hands, and in each case (under prudent lending practices) the loan would have been declined.


Lenders had set up the structure, the forms, the legal documentation, the Agreements and commissions payable. 


Maladministration in the lending process has been put to the test via these cases and it is painfully clear n reading these cases that all nine judges believe the banks were “fully aware” that certain checks and balances would never take place, and knew the higher risk became paramount to the financial well-being of its future customers.

After collecting evidence of these activities the past eight years, I agree with those findings.  In fact I praise the Judges for their fairness in sifting through the arguments raised.


 Each LAF presented in Court, contained obvious examples of Maladministration in Lending.  The plan by the Banking Industry players involved constructing a pathway for the LAFs never to see the light of day, thereby rendering their own customers powerless in their ability to save their homes. 


Clients are also collectively dissuaded from getting independent legal advice by a number of tricky methods which we can explore in the future. 


These Lenders displayed a complete disdain for the law and for justice.  They showed a complete disregard for the ability of pensioners and low income families to repay the payments of these horrendous loans.  Australian Banks and Non-Banks viewed their own customers as cannon-fodder on the altar of corporate greed.

Of deep concern to our agency is the fact that these Lenders must have collectively agreed never to telephone the “client.”   

How could each Lender know what the other was doing unless part of a magnificent and collusive plan to steal elderly people’s homes?

It is for this reason, being part of the Lenders’ overall marketing strategy, why the “Argument of Agency” becomes a major issue.

I have found evidence of the same methods used in all states in Australia and New Zealand (involving Australian Banks), demonstrating an abhorrent intention to deceive the public for the sake of volume business involving asset-lending.

Thankfully the Nine Judges did not miss the vital clues to the Bankers’ overall intentions and acknowledged these were indeed questionable practices.

Our Australian Courts have spoken and the Judges themselves are appalled at this behaviour to the extent one member of the Judiciary, took it upon himself to quote 17 pages of the Lender Agreement ( a universal 90 page document) demonstrating the nature and extent of the deception used.

Collectively, the Lenders created the product, the strategy, the training and recruitment channel, the contracts, forms and promotional material and also employed their own highly paid BDM’s. 

Our Banks stand condemned for their sub-prime lending activities.


The covert determination to hide copy documents, the reluctance to furnish the complete documents when asked by the Police, is proof of a systematic intention to deceive the public.   The strategies used were in line with Sub Prime Mortgage lending, yet banks have recently referred to these defaulting loans as “non-prime” lending.

I for one, fail to see the difference. 

The Australian and Securities Investment Commission (“ASIC”) was warned of these dirty lending practices and their prevalence in the banking industry in 2003.  In fact, “ASIC” led the charge to abolish commissions and numerous people called for Inquiries into the Banking Sector during 2003 – 2008.  All of these issues raised by the Judges are shocking points of fact.

So how did these cases come to light (a shock for the Lenders) when the respondents were the poorest people in the community?  Agencies involved in investigations and consumer advocates were appalled by these activities and complaints.  Funding was raised from a number of areas including State support to run test cases against the banks.

Lender arrogance failed to contemplate community outrage. 

I asked one lawyer engaged by one of the Lenders:”do you disagree with these Nine Judges?”  The lawyer responded: “No I did not say that.”

The use of the “Broker Model” is a key indicator of a collective intention to deceive.

Had the collective intention been to Protect the Consumer, then the ARIP market would have been avoided at all costs.  Had that vital decision been made for the purest of intentions, the loans would have been declined and the projected “$50 Billion New Market” would have produced few dollars:  banking ethics and reputations would have been protected.

The Lenders involved, understood the commercial risk but wrongly believed (to the detriment of shareholders) the banks were protected from prosecution or blame for the following reasons:-

      1.       The collective absence of any documentation to the client.


2.       The collective decision to never phone the client (one phone call would have blown the whistle).


3.       The collective low income factor as the target market, prohibiting most victims from obtaining justice and for there to be little likelihood of exposure for Lenders as to their involvement.


4.       The Lenders’ legal teams’ collective interpretation of the Argument of Agency which Judges have since deemed  erroneous, bringing down a string of adverse findings against the banks.


5.       The collective decision to allow the use of ABN numbers “for a day” and for approval officers to never verify the bona fide of the details on the LAFs.........suggesting a known fraud was in progress all the way through to the loan processing stage.


6.       Of particular concern is the fact that Maladministration in Lending has been permitted to continue as “normal” practice in an estimated $50 billion ARIP market with little scrutiny.  


No-one in the banking sector is taking responsibility for this dreadful situation.  Lenders are openly suggesting that “we too are victims of the Brokers....”   That notion is inconsistent with the overwhelming evidence to the contrary. 

We have all come a long way from the results of Elkofairi and Khoshaba.  The evidence presented at those trials is only a fraction of what could have been submitted in light of more recent research and investigations.  Yet thanks to the members of the Judiciary who could see what had occurred and in seeking the absolute truth, ruled in favour of the victims.

I am now flooded with calls for assistance and the pattern of banking deceit, is as obnoxious as it is obvious.

BFCSA Inc intends to call upon three respected law firms to examine these cases and furnish us with their own interpretation of the Argument of Agency, based upon the most recent cases.

My intention is to furnish FOS with these Legal Opinions.

In my view, what is really required is a Royal Commission into the Banking Sector as suggested in 2001.  I appreciate an Inquiry into the Banking Sector is a matter for Government.  However, the need is clearly urgent given the escalation in similar cases, during the past decade.




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  • Denise
    Denise Wednesday, 12 February 2014

    On my To DO list to Update this year. [email protected]

  • doyla66
    doyla66 Wednesday, 12 February 2014

    Thank you Denise.

    Unbelievable that FOS finds "the broker was your agent".
    And: "Please note that this Determination is final and there is no provision in our Terms of Reference for a Determination to be re-examined or amended in any way."
    The whole thing is a monumental farce!

  • doyla66
    doyla66 Wednesday, 12 February 2014


    So basically, these people need to a lawyer so the judge can step in.
    Is that the last resort.
    What a waste of time FOS is.
    I reckon the senetors might be very interested in what DB has to say next week.
    Everything she is saying makes sense....
    If we could just get one lawyer to help us and be part of this.
    Isn't there a graduate out there that wants to be part of the biggest thing to happen in banking history in Australia.
    They would earn a packet and be part of history in the making.....

  • doyla66
    doyla66 Wednesday, 12 February 2014

    Just watched Graham Richardson on Sky who stated he has shares in CBA also state that he approached Wayne Swan and Chris Bowen about the high percentage rates on credit cards when they were Treasurers. This is in response to CBA's record profits and Richo stated though he is profitting personally that the rate is way to high and appealled to the banks to lower rates because it was affecting low income earners. He also stated that Treasury is 100% behind the banks and advises government not to interfere against them.

  • doyla66
    doyla66 Wednesday, 12 February 2014

    APRA the Regulator says.....

    APRA the Regulator says......[
    Recent court decisions relating to residential mortgage lending emphasize that residential
    mortgage lenders must assess the ability of the loan applicant to repay the loan and must not
    be concerned solely with whether the value of the security property is adequate to repay the
    debt.[/b] The decisions also indicate that lenders should not entirely accept the information
    provided by loan applicants at face value, especially if other information or common sense
    suggests otherwise.

    It is APRA’s view that attention by ADIs to the requirements in the prudential standards to have
    prudent lending practices, including effective assessment of a loan applicant’s debt repayment
    capacity, and to follow these practices is likely to reduce the risk of loan contracts or
    mortgages being unenforceable.

    If an ADI relies on a third party (such as a mortgage broker or introducer) to obtain, verify or
    validate loan application information, APRA expects the ADI at a minimum to confirm that the
    third party has undertaken those tasks in accordance with the lender’s guidelines. Preferably,
    the lender should assess the accuracy of loan application information independently of third

    As AGN 112.1 makes clear, mere collaterisation of the mortgage loan by residential security
    without appropriate assessment of the repayment capacity of the borrower is not considered by
    APRA to be sufficient risk management practice for an ADI.

    APRA’s approach to broker-originated loans.
    We have never said that ADIs cannot use third party loan originators. Rather, we insist that, where this is
    done ADIs must ensure that the originator applies the ADIs’ own credit assessment
    Moreover, the ADI must monitor and audit loans being originated via a
    broker to ensure on-going compliance with its lending criteria.

    Prudent bestpractice for ADIs is also to include a risk-based component in the fees it pays for
    broker-originated loans.

    APRA Regulation Impact Statement (RIS) September 2004
    In the past two years, non-ADI lenders have begun to offer loans written with considerably less than the normally required documentation and checking of borrowers’ income and serviceability. These loans are usually referred to as "Low Doc" loans. As this market has expanded, ADIs have responded by offering similar loan products.

    Lenders view the Low Doc product as an opportunity to fill a perceived gap in their product range that would be attractive to self-employed and other borrowers who are unable or unwilling to fulfil the normal income verification procedures required under conventional lending practices with residential property as security.

    The latter usually involves ADIs obtaining income information (such as salary slips and tax return information). In the case of Low Doc loans, however, borrowers are only required to self-declare their income levels and/or servicing ability and the lender does not seek to verify the information.

    There has also been an increasing tendency for ADIs to offer loans originated via mortgage brokers and other third party channels. In some cases, ADIs are accepting the serviceability assessments carried out by those referring the borrowers to them (without independently verifying the borrowers’ information themselves), and are placing greater focus on the security underlying the loan rather than the ability of the borrower to repay the loan.

    Both Low Doc loans and broker-originated loans can lead to problems associated with asymmetric information, where one side of the market (potential borrowers) knows something that the other side (ADIs) does not. Asymmetric information often leads to opportunistic or exploitative behaviour by the informed party and market failure.

    In order to avoid these problems, APRA expects ADIs themselves to be responsible for deciding the criteria to be used in making the decision to lend in all circumstances, and should not rely on broker valuations or income checking when providing a home loan.

    Furthermore, any use of a third party in the lending process should not adversely impact upon compliance with the ADI’s lending criteria. APRA is of the view that any use of a third party in the credit decision should only be allowed where the ADI’s credit assessment requirements are clearly specified and the relationship is managed in accordance with ADI Prudential Standard APS 231 – Outsourcing.

    APRA APS 231 – Outsourcing.

    7. Outsourcing involves an ADI entering into an agreement with another party (including a related body corporate) to perform, on a continuing basis, a business activity which currently is, or could be, undertaken by the ADI itself.

    10. A material business activity is one that has the potential, if disrupted, to have a significant impact on the ADI’s business operations or its ability to manage risks effectively, having regard to such factors as:

    (a) the financial and operational impact and impact on reputation of a failure of the service provider to perform over a given period of time;

    (d) the ability of the ADI to meet regulatory requirements if there are problems with the service provider;

    (e) potential losses to the ADI’s customers and other affected parties in the event of a service provider failure; and

    (f) affiliation or other relationship between the ADI and the service provider.

    13. Although outsourcing may result in day-to-day managerial responsibility for a business activity moving to the service provider, the ADI remains responsible for complying with all prudential requirements2 that relate to the outsourced business activity.

    15. The ADI’s risk management framework3 must deal with the risks associated with the outsourcing of a material business activity. APRA nevertheless expects that an ADI’s risk management framework will cover the risks associated with outsourcing a material business activity.

    17. An ADI must be able to demonstrate that, in assessing the options for outsourcing a material business activity to a third party, it has:

    (a) prepared a business case for outsourcing the material business activity;

    (b) undertaken a tender or other selection process for service providers;

    (c) undertaken a due diligence review of the chosen service provider;

    (d) involved the Board, or Board committee or senior manager with delegated authority from the Board in approving the agreement;

    (e) considered all the matters outlined in paragraph 20, that must, at a minimum, be included in the outsourcing agreement itself;

    (f) established procedures for monitoring performance under the outsourcing agreement on a continuing basis;

    18. An ADI must be able to demonstrate that, in assessing the options for outsourcing to related bodies corporate, it has considered:

    (a) the changes to the risk profile of the business activity that arise from outsourcing the activity to a related body corporate and how this changed risk profile is addressed within the ADI’s risk management framework;

    (c) the required monitoring procedures to ensure that the related body corporate is performing effectively and how potential inadequate performance would be addressed;

    19. Except where otherwise provided, all outsourcing arrangements must be evidenced by a written, legally binding agreement. The agreement must be executed before the outsourcing arrangement commences.

    20. At a minimum, the agreement must address the following matters:

    (a) the scope of the arrangement and services to be supplied;

    (b) commencement and end dates;

    (c) review provisions;

    (d) pricing and fee structure;

    (e) service levels and performance requirements;

    (f) audit and monitoring procedures;

    (g) business continuity management;

    (h) confidentiality, privacy and security of information;

    24. An outsourcing agreement must include a clause that allows APRA access to documentation related to the outsourcing arrangement. In the normal course, APRA will seek to obtain whatever information it requires from the ADI; however, the outsourcing agreement must include the right for APRA to conduct on-site visits to the service provider if APRA considers this necessary in its role as prudential supervisor. APRA expects service providers to cooperate with APRA’s requests for information and assistance. If APRA intends to undertake an on-site visit to a service provider, it will normally inform the ADI of its intention to do so.

    Notification requirement
    27. An ADI must notify APRA as soon as possible after entering into an agreement to outsource a material business activity to a service provider and in any event no later than 20 business days after execution of the agreement between the ADI and the service provider. This notification requirement applies to all outsourcing of material business activities.

    28. When an ADI notifies APRA of a new outsourcing agreement, it must also provide a summary to APRA of the key risks involved in the outsourcing arrangement and the risk mitigation strategies put in place to address these risks. APRA may request additional material where it considers it necessary in order to assess the impact of the outsourcing arrangement on the ADI’s risk profile.

  • doyla66
    doyla66 Thursday, 13 February 2014

    Good info Simba, now if only somebody in authority could put that into practice. I wonder if anyone at FOS or COSL refer to this information?

  • Denise
    Denise Thursday, 13 February 2014

    Thanks Simba.......a big help indeed. There are many reports, discussion papers on the subject of Bankers and Agreements. It was ASIC that permitted the SIX DEGREES of Separation "business model" used by the Bankers to create mayhem. Nothing was in the consumers best interests. Sub Prime Lending was all about lowering standards and getting away with it and making BIG FAT PROFITS from a Fraudulently manufactured financial product. ASIC has admitted the SERVICE CALCULATOR that "calculated phony futuristic incomes" proves the banks are the engineers of the entire scandal. There comes a point in Good Government whereby our politicians have to say "this needed to be addressed long ago, we may be too late, but this could wreck the economy." APRA has already admitted that "if 12 documents were to be released it would sink the economy." Yes we know, we see the grass roots destruction of the very fabric of our lives. Regulators are failing to take the lead of the Courts. Royal Commission into Banks...... Its time gentlemen! [email protected]

  • doyla66
    doyla66 Thursday, 13 February 2014

    Asset stripping, this time its the government.

    This morning I watched in horror on TV as our government has basically put a price on every national asset. The banksters might of started the trend to asset strip starting with the family home but the government is following their lead. Medibank Private. looks like going first for about three billion dollars and the government has identified over $150 billion worth of possible assets for sale. Everything will have a price on it, anyone who has been to England can relate to this, Margaret Thatcher did the same thing. Even parking spots in little towns or pullovers have pay and display signs everywhere, everything has a price. Its good economic management that will save the country not selling off the farm to the first buyer, what legacy are we going to leave our kids?The banks should be investing in our future and not being a parasite and sucking the life out of it. Everyone has a part to play in this countrys future.

  • doyla66
    doyla66 Thursday, 13 February 2014

    And $150 billion asset sale.

  • doyla66
    doyla66 Thursday, 13 February 2014

    Just saw Joe make a few big admissions on telly - he actually said Victoria's budget is in better shape than the Federal Budget - the biggest assets for sale are at State level - we will all have to do the heavy lifting in partnership - governments have run out of money but private enterprise is awash with it - the job market will get a lot worse - the status quo is not an option - doing nothing is not an option...... now it's just been announced the Vic Govt is giving SPC what Joe refused AND the NSW Govt is going to sell what it has vowed forever it would never do re what's left of our electricity! Holy dooley - pass me the holy water!

  • doyla66
    doyla66 Thursday, 13 February 2014


    Bla bla bla Joe.....
    I saw it to.
    I look forward to the next few weeks in news segments.....
    Once the media talks to DB in SYDNEY ..... Let's pray they run with it.
    I have a very big feeling BFCSA members will increase drastically within weeks. RE?.. DBS email today
    She is never wrong.....

  • doyla66
    doyla66 Thursday, 13 February 2014


    And it will be very interesting what happens to FOS and if things change there.
    Are FOS offices in all different states or are they just based in melbourne?
    Just wondered .

  • doyla66
    doyla66 Thursday, 13 February 2014

    I hope Denise gets an opportunity to talk about the new determination process. It is truly shocking. Ed: On my list Gladiator!

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