A court ruling has found that Sample and Partners, a mortgage broker in three States misled borrowers on debt reduction schemes.
Sample and Partners, a mortgage broker exposed by "Money" for charging borrowers thousands of dollars in fees for a mortgage reduction scheme involving high-interest line-of-credit loans, may have to compensate borrowers following a court action.
But the NSW Consumer Credit Legal Centre's principal solicitor, Katherine Lane, says the mortgage broker should have been fined so a compensation fund could be established for borrowers. She says it is disappointing victims have to make a claim against the company in order to obtain compensation.
Federal Court orders obtained last month by the Australian Securities and Investments Commission found that George Matthew Sample (known as Matthew Sample) and Craig Kenneth Turrell deceived and misled borrowers about their mortgages and how quickly those loans could be paid off.
The court finding followed a three-year investigation by the regulator. Matthew Sample is principal and managing director of Sample and Partners, while Craig Turrell is general manager of the mortgage broking firm, which has offices in Sydney, Melbourne and Brisbane.
The scheme came with high fees and charges for line-of-credit loans that Sample and Partners promised could be repaid faster than a standard variable home loan.
Carolyn Bond, the co-chief executive of the Consumer Action Law Centre in Victoria, says: "Action by the regulator means that the industry is cleaning up its act a bit. You see less and less of these sort of loans on offer."
Bond says borrowers who were misled are entitled to compensation. "There's no reason why you shouldn't get funds covering fees and interest charges back."
ASIC's executive director of enforcement, Jan Redfern, says the court case sends a clear message to other mortgage brokerage firms marketing mortgage reduction schemes or line-of-credit loans that come with promises that the debt can be repaid quicker than debt on a standard, variable interest-rate mortgage. "It sets out clearly what we have found to be problematic or objectionable behaviour. The company has had to make undertakings to make good," she says.
The investigation by Money found interest rates on Sample and Partners' brokered home loans that were 0.6 to 1.5 per cent higher than a basic home loan. Fees for the debt reduction scheme ranged from $3000 to $8000 and involved line-of-credit loans.
After paying the high fees the original debts were enlarged and, coupled with higher interest rates, could not be paid off faster.
Unlike standard home loans, which require principal and interest repayments to reduce the debt, line-of-credit loans require interest payments only.
Lane says ordinary families have a lot of trouble paying off line-of-credit loans.
"At least with a normal home loan, it is forced saving. You have to make repayments. Five years after signing up for a line-of-credit loan you might not have paid anything off the loan," she says.
ASIC alleged that Sample and Partners' sales staff told borrowers that by switching to a Sample and Partners' loan they would save money and pay off their home loan sooner.
"But they failed to adequately explain that to obtain this benefit clients would need to make extra repayments," ASIC said in a statement released after the court's finding.
The court heard that Sample and Partners also used case studies that referred to people who had switched to Sample and Partners loans and saved money. These people did not exist.
The Sample and Partners brokers told borrowers they searched the market for the best possible loan when, in fact, they offered a limited range of home loans. Some borrowers also ended up with loans from a company called World Home Loans. Matthew Sample did not tell borrowers he was a director of Sample and Partners and a director and shareholder of World Home Loans Pty Ltd and World Home Loans Administration Service Pty Ltd.
The court declared the mortgage broker told clients that before they refinanced, it would consider their financial circumstances and whether or not they would benefit from changing loans.
Sample and Partners also told clients it had expertise to offer insurance advice and employed specialist staff including financial planners and solicitors when it did not.
The mortgage broker must write to all former clients within 30 days (of June 18) and tell them of the court order, and it must provide borrowers with documents to help them make a claim against the firm.
ASIC's Redfern says the court order includes the appointment to Sample and Partners of an independent compliance officer, who will monitor their handling of claims. The compliance officer will also report to ASIC on whether Sample and Partners is complying with the ASIC Act with regards to future clients.
The court orders prohibit Sample and Partners from engaging in this conduct in the future.
Sample and Partners agreed to the orders, which also involve the payment of ASIC's costs of $200,000.
"Choosing a home loan is likely to be one of the biggest financial decisions a person will make," Redfern says.
"Mortgage brokers, who are often relied upon to facilitate and help people through this process, have important responsibilities to ensure that the information they provide is accurate and truthful."
Sample and Partners' director of corporate services, Michael Crouch said in a written statement that "as a company we look forward to working with all regulators both state and federal to ensure ongoing compliance in our industry".
How to make a claim
The Consumer Action Law Centre in Victoria and the NSW Consumer Credit Legal Centre will help borrowers make a claim against Sample and Partners.
Their lawyers believe that borrowers should be able to mount a case to have fees and charges as well as high interest payments returned.
The only way to reduce a home loan faster is to make extra repayments - paying off as much as you can, as often as you can, on a low interest loan.
For help, phone the Consumer Credit Legal Centre in NSW on 1800 808 488 or in Victoria, phone the Consumer Action Law Centre (03) 9629 6300. For the court declarations on the case, visit ASIC's website at www.asic.gov.au.
