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Mrs Y – Investment Loan case study
Thomas Howard, a mortgage broker for the XYZ Financial Services Group, sourced Mrs Y’s
details from a default listing made by the local council as a result of unpaid council rates.
The broker contacted Mrs Y and offered to obtain finance for her to:
→ consolidate her existing loans
→ pay outstanding bills, and
→ invest additional funds with him at a return of 10%p.a., which would be at least 3%p.a.
above the interest rate payable on the loan.
The broker completed an application for finance on Mrs Y’s behalf applying for:
→ an $80,000 home loan, and
→ a $250,000 interest only investment loan.
The application disclosed Mrs Y earned an annual income of $60,000 as the head chef of Eata-Lot restaurant. Annexed to the application in support was a letter from Eat-a-Lot
restaurant confirming Mrs Y’s employment and income.
The financial services provider (FSP) approved Mrs Y’s application. It made available to her
$80,000 for debt consolidation and paid directly to her broker the investment loan proceeds
of $250,000. Mrs Y granted a mortgage over her family home.
For two years, Mrs Y received regular returns from her broker. Then she was advised that her
broker was ill and that his investments would be realised to return capital advanced by
investors. Mrs Y subsequently could not make contact with the broker and had been
unsuccessful in recovering her $250,000 investment.
Mrs Y filed a formal complaint with the Approved Australian Regulator (AAR) which said that:
→ she was in receipt of Centrelink benefits
→ she supplemented her pension by selling home-made preserves at the local council
→ her annual income was less than $15,000
→ she had never worked for a restaurant
→ she had never earned $60,000
→ the signature on the loan application was not her signature
→ she signed the FSP’s loan offer and mortgage
→ she accepted liability for the loan she had received to consolidate her debts and pay
→ she should not be liable for the false and misleading information the broker provided
to the FSP, and
→ she should not be liable for the $250,000 investment loan.
The FSP’s response
The FSP said:
→ the finance application had been introduced by an introducer, who was affiliated to a
mortgage manager, A
→ it paid commission to A for introducing successful finance applications
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→ it had no affiliation directly with the introducer or with the broker, and was not liable
for their conduct
→ Mrs Y’s loan application was assessed in accordance with its policies and procedures
→ its procedure included a telephone call to Mrs Y’s employer to confirm her
employment and income
→ Mrs Y’s verified income of $60,000 was sufficient to service her $330,000 loans even
without relying on the anticipated 10%p.a. return from her investment with the
→ it had no liability to Mrs Y for her investment decisions
→ it had no liability for the conduct of Mrs Y’s broker, and
→ Mrs Y was liable to repay both loans.
Investigation of signature on loan application
ARR investigators inspected Mrs Y’s signature on:
→ a privacy consent form
→ the FSP’s loan offer, and
→ her original dispute lodged with the authorities
On a simple inspection, there were significant inconsistencies between the signatures on
these documents when compared with the signature on the loan application. In the case
manager’s view, these inconsistencies supported the conclusion that Mrs Y did not sign the
loan application before it was presented to the FSP.
Investigation of who was responsible for the broker’s acts
In response to ARR’s request for information, Mrs Y said:
→ she had met the broker at her home
→ she provided him with the information he requested about her income and financial
→ she trusted the broker
→ she did not check the details completed by the broker, and
→ she was not asked to sign any documents by the broker at that meeting.
ARR noted the loan application form identified:
→ Ms H as agent for the introducer, not the broker
→ the domain name for Ms H’s e-mail address as the broker’s business
This information suggested the broker and the introducer had a working relationship.
The ARR investigator also noted the broker’s name was the same as the proprietor of Eat-aLot restaurant who had signed the letter of employment confirming Mrs Y’s employment
and income which was cause for suspicion.
While the FSP had acknowledged it had an affiliation with A, the mortgage manager, there
was no information to support a conclusion that the broker or introducer was an agent or
held themselves out as representing the FSP. Therefore, there was no principal/agent
relationship between the broker and the FSP that would make the FSP liable for the conduct
of the broker or the introducer in submitting information supporting Mrs Y’s loan application.
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ARR noted that Mrs Y’s loan application was approved via the FSP’s automated credit
The FSP’s policy said:
→ the preferred verification of income was by way of confirmation of regular credits to
→ deposit details are more reliable than payslips or other documentation which can be
→ new customers must produce original or verified account statements, and
→ in some cases, additional information, such as a letter from an employer, may be
required to clarify information contained in an applicant’s account statements.
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