Financial Services Legislation & Compliance- Case Study Analysis- Report Writing Assignment



Scenario 1: Mustapha has just been told that come 1 st July he would be stepping up as the new Assistant Manager. On telling his partner Jenny the good news, she suggested they start looking to buy a house as they’d probably be able to afford one. Excited, they call a local finance broker who was previously referred to them by a friend. The finance broker congratulated Mustapha on his imminent promotion and asked if they would answer some questions to help determine how much they could borrow. Mustapha and Jenny agreed to provide the required financial information. Mustapha and Jenny are good savers and have sufficient funds to possibly cover for a 10 per cent deposit.

Jenny is cautious and felt a fixed rate loan would be better so they could budget effectively. Mustapha felt no reason to disagree so the broker worked out a loan amount based on the introductory rate which was fixed for the first six months. Mustapha’s increased salary meant they could borrow a lot more than before. Jenny’s income varied as she works casual at the local store. The broker asked Jenny how many hours she worked on average to determine their combined income.

The broker signed and dated the preliminary assessment with today’s date. She then gave Mustapha’s Jenny a copy.

a. Explain the importance of making initial enquiries about a customer and verifying this information.

b. What did the broker not do in relation to the interview process?
i. Compliance requirements
ii. What alternative options were offered?
iii. Explain if the clients had sufficient resources for fees?
iv. What is the expiry date on the Preliminary Assessment? (Refer NCCP Act 2009 Section 115)

Scenario 2: Mal and Corinne are seeking your advice in relation to refinancing their loan after speaking with some friends who have a more flexible loan product and a better rate with their lender.
c. Highlight the factors Mal and Corinne should consider before making the decision to switch or refinance their loan.

Scenario: Stephen was a floor and wall tiler who earned $1,200 a week. He spent $600 a week on expenses. He went to a lender to get a home loan of $200,000. Stephen needed a loan with an average interest rate that he could pay off over the medium term. Instead, he was offered a loan for $500,000 with a high fixed interest rate and therefore
repayments that he could not readily afford. As he was experiencing hardship, Stephen sought an injunction against the lender collecting his mortgage repayments. Stephen then sought compensation for the loss and damage he had suffered for being put into an unsuitable loan.

a. Describe what you think will happen under the consumer protection provisions of the responsible lending obligations.

b. What Penalties can be incurred?

3. DISCLOSURE AND PRESCRIBED DOCUMENTS (Please note this relates to Finance/Mortgage Broking Not Financial Planning)

a. What document should a credit representative or Australian Credit Licence holder provide to a client to explain about the services they offer? List some of the information contained in this document.

b. In your OWN words, explain why is it important for a business to have a sufficient complaint’s handling system? In your answer explain the essential steps in handling and resolving a customer complaint. The Commonwealth Ombudsman has a good Better Practice Guide to Complaint Handling publication on their website.

Scenario: John Consumer is applying for a loan of $350,000 to buy a home. The Credit Representative’s fee quoted to John to recommend and apply for a loan on his behalf is $225.00 (in most cases non-refundable). The valuation fee is estimated at $350.00, $800.00 for legal fees and a loan application fee of $400.00. The Credit Representative’s Licensee receives from the lender an up-front commission of 0.40% + GST of the loan amount and a monthly trail commission of .15% + GST on the outstanding loan balance. An agreement will be in place between the Licence holder (Principal) and the Credit Representative (Contractor/Employee) to proportionately share the commissions.