What is the NCCP Act?
The National Consumer Credit, or NCCP, is a legislation that is designed to protect consumers and ensures both ethical and professional standards in the finance industry, through the National Credit Code (NCC).
The NCCP is regulated and enforced by The Australian Securities & Investments Commission (ASIC) in accordance with the NCC.
The NCCP states that both lenders and mortgage brokers must hold a credit licence or must be registered as an authorised credit representative and must adhere to the rules that are set out in the NCCP Act.
What loan types are regulated?
Generally, almost all home loans and applications are regulated under the NCCP Act.
Although the rules that are associated with this are complicated, a loan should meet the following conditions:
- The borrower is a natural person
- A charge has been made for providing the credit
- The provider of credit provides the credit through the course of a business
- The credit is provided completely or largely;
- For personal domestic or household purposes
- To either purchase, renovate or improve a residential property for the purposes of investment
These conditions signify that most standard home loans are regulated in accordance with the NCCP Act.
What loan types are unregulated:
There are some exceptions to loan types that are not regulated under the NCCP Act. Unregulated home loans include:
- Loans that are in the name of a company; not a natural person
- Loans that are predominantly used to invest in commercial property, shares or a business.
- Unsecured loans where the applicant for the loan is a corporate entity and the purpose of the loan correlates to commercial or business purposes.
The process of applying for a home loan:
Upon applying for a loan with a lender or mortgage broker, they must follow the specific processes that have been set out in the NCCP Act.
- Enquires: Your chosen mortgage broker must make enquiries to your current financial position, requirements and any objectives that you may have.
- Verification: The mortgage broker must take the necessary steps to verify your financial position.
- Preliminary assessment: After all of the relevant information has been gathered from the previous steps. The broker must conduct a preliminary assessment of the loans that are best suited to you before recommending them to you.
What does ‘not unsuitable’ mean?
In accordance with the NCCP Act, the mortgage broker or lender must provide you with a loan that is not unsuitable.
A loan is deemed as not unsuitable by the ASIC if:
- The loan meets your specific requirements and objectives
- You have the ability to repay the loan without enduring considerable financial hardship
The term ‘not unsuitable’ was selected as it places the responsibility on the applicant of the loan to prove that the loan was unsuitable, rather that be the responsibility of the lender to prove that the loan was suitable.
Can’t I just be told which lender and options are best?
Often, many applicants of loans will want to know the lender that they should apply with, along with the interest rate that they will receive, before they have undergone the first steps properly.
It is not possible to recommend a lender, or be given an interest rate, without understanding an applicant entire situation and the supporting documents as it is against the NCCP Act. Without this information, the applicant cannot be given accurate information.
What about low doc loans?
In accordance with the NCCP Act, both lenders and mortgage brokers are required to take the necessary and reasonable steps to verify a loan applicants financial position, however, this is contrary to the concept of a low doc loan, where the applicant does not need to provide evidence of their income.
In order for lenders to work around this issue, they have created an ‘alternative verification’ method.
By an applicant only providing some documents as supporting evidence to their income, the lenders are able to fulfill their obligation in accordance with the NCCP Act without the requirements of tax returns or financial statements.
The documents that lenders most commonly ask for are:
- BAS Statement: The lender may request a 12-month Business Activity Statement (BAS) to estimate the applicant’s income.
- Trading Statements: The lender may request for bank statements from the previous 6 months from the business to estimate the applicant’s income.
- Accountants letter: The lender may have an accountant letter template where they require the applicant’s accountant to sign that will confirm their income.