Compliance tip of the week - Undisclosed fees in the Credit Proposal Disclosure document
Under the National Consumer Credit Protection Act 2009, documents must be provided to a customer to supply them with the information they need to understand the credit activities which you provide. These documents ensure that consumers have access to information that will help them make decisions about dealing with you, understand their rights should they deal with you and the products that are being offered to them.
Under these regulations, the purpose of the Credit Proposal Disclosure document is to disclose fees that are critical to the initial application of the loan. This must include the total amount of any fees and charges that the customer has to pay for the credit contract (or consumer lease) and a reasonable estimate of commissions that will be received.
Section 121 (2) (d) of the NCCP Act speaks to fees payable to a “party other than the credit provider” and states the following: “a reasonable estimate of the total amount of any fees and charges payable by the consumer to any other person in relation to applying for the credit contract.”
What this means is, where there are additional fees that arise as part of the application process, (such as a lender who outsources their loan documentation procedure) these will not appear in the Credit Proposal Disclosure document as it is not a fee paid to the lender. The Credit Proposal Disclosure Document will pick up the lenders settlement fee, but not the fee that is charged by the lender’s solicitor for preparing loan documents and attending settlement.
Nor are these fees required to be listed in the Credit Proposal Disclosure. However, for the benefit of transparency all fees associated with the establishment of a new application should be disclosed to the client, so they are fully aware of the cost of obtaining their new loan and to ensure they are deriving a benefit by selecting that lender. Therefore if you are selecting a lender where you know that these fees are likely to be a part of the application process, they should be disclosed to the client.