Real Estate Agent Referrals

Many Real Estate agents are currently unsure if they too are required to obtain an Australian Credit licence. Some provide mortgage information on their websites, while others use credit information to gather customer information for a representative to contact. Wether or not they need a licence, well it “all depends” and we will discuss the conditions further in the article.

The purpose of the National Consumer Credit Protection (NCCP) Act 2009 is to regulate the activities of all credit providers. All persons and corporations involved in the area of “credit assistance” are required to either obtain an ACL (Australian Credit Licence) or become a representative under a licence. Without a licence it is not possible to practice in this area of financial provision and penalties apply.

Aspects of this new legislation do impact on the real estate industry and it is important that all in the real estate industry be aware of these changes.
When answering the questions of “What is Credit Assistance” we are asked “do you in any way provide credit assistance to a client?”.

For example, a real estate business whose focus was on the area of investment property sales would often provide mentoring services to their clients and within their process would provide mortgage structuring advice. Such companies would also run seminars where the presenter explains various scenarios for purchasing investment property, with opportunities for the audience to ask questions and discuss financing options one-on-one after the session.
All of the activities mentioned above could be considered providing credit assistance under the NCCP Act.

There are however some notable exemption underneath the Act for those who can be classified as “Exempt Referrer”. Those with existing referral agreements in place should already have documentation in place for their clients known as an “Exempt Referrers Agreement”. To meet the classification of an ‘exempt referrer’ the following conditions must be met:

  • Any referral will need to be incidental to the primary business
  • A fee may not be charged to the customer for the referral
  • Products may not be discussed
  • Recommendations or advice relating to arranged finance may not be discussed

In addition to the above conditions an ‘Exempt Referrer’ must:

  • Obtain consent from the client to pass their details on to a third party
  • Any referral fee or commission for referral must be fully disclosed to the client
  • Once consent has been obtained the referrer has a maximum of 5 day to forward the details on to the ‘credit assistance’ provider.

Those who do not abide by the exemption rules can be deemed to be trading and providing credit assistance whilst unlicensed and face severe penalties under the Act. In addition Brokers found to be accepting referrals outside the terms of the exemption would also be in breach of the Act.

It is important to clarify that even if the referrer does not receive a commission and ‘exempt referrers agreement’ must be in place.

With the continued growth in online presence the new legislation has some interesting application for those whose website includes pages with finance options. If the webpage simply links to a lender or mortgage broker, the pages would be deemed advertising and a referrer’s agreement would not be required. If, however, the page gathers names and contact details to pass on to the lender it would be considered a referral and as such an ‘exempt referrer agreement’ would need to be in place. Similarly if a client contacts you as a result of your advertisement, one can only pass on their details to a lender or broker with an ‘exempt referrer agreement’ in place. If the website contains a financial calculator or credit application it would most likely be considered to be provision of credit assistance and a credit licence would be required.

One of the big aspects the legislation that will impact the Real Estate industry is ‘responsible lending’ and informing a client the loan is ‘unsuitable’. Responsibility of this decision now falls with the person interviewing the client, not with the lender.

By law the broker will have to verify a consumer’s financial position. If the person arranging the finance deems the borrower would struggle with their financial obligations including the loan, he must then deem the borrowing as ‘unsuitable’.

In this situation if a real estate agent were to subsequently refer the buyer to another credit arranger for a better appraisal they may be in breach of the legislation. Under the Act the ‘referrer’ is not allowed to assist a client source funding, once the borrowing has been deemed ‘unsuitable’.

While this article provide general guidelines in regards to the NCCP act, if you are in any doubt about your status you should contact a legal professional for advice.

ASIC Regulatory Guides can be found at CreditLicencing.com.au