Beware potential breaches with LRBAs, says lawyer

Written by Staff Reporter Friday, 05 September 2014

Financial advisers and accountants who provide certificates for LRBAs could be breaching the National Consumer Credit Protection Act 2009, according to one industry lawyer.

SMSF clients seeking to enter an LRBA frequently ask their adviser or accountant to complete a certificate from the lender in order to confirm they have advised the client about the terms, suitability and risks of the loan, said senior lawyer at The Fold Legal, Lesley Thorne.

These practitioners could potentially be giving credit advice, for which they may not be insured, she said.

“Unless the adviser or accountant holds an Australian Credit Licence or is a Credit Representative of a licensee, it is an offence to provide ‘credit assistance’ or ‘act as an intermediary’ in relation to consumer credit,” Ms Thorne said.

“This means that if the client’s loan is consumer credit and the adviser or accountant isn’t licensed or authorised, they can only provide the client and their lender with factual information.”

Where the trustees of an SMSF are individuals, an LRBA will be consumer credit if it is to purchase, renovate or improve residential property for investment purposes, Ms Thorne explained.

“Because the objective of an SMSF is to provide retirement funds for members, a property purchase or renovation by the SMSF will always be for investment purposes,” she said.

“This means that a loan provided to SMSF trustees who are individuals intending to purchase/renovate property will be consumer credit.”

Where a loan is to purchase a different type of asset or the SMSF has a corporate trustee it won’t be considered consumer credit, she added.

“Advisers and accountants still need to be wary in this area though [since] providing advice on the loan or a certificate to the lender could still overstep their professional boundaries, leaving them vulnerable to claims by a client or a lender that aren’t covered by their professional indemnity insurance,” Ms Thorne said.

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0 #4 Eileen Meehan 2014-09-16 08:49
For NSW lawyers Solicitors' Rules 58 applies.
+1 #3 Martin Le Tessier 2014-09-05 12:27
It depends on what the certificate actually states and what you sign off.
Most lenders are covering themselves in getting the borrowers to get a financial advice certificate. I have never seen a certificate worded in such a manner that the financial adviser is RECOMMENDING they proceed with the credit or stating it is in their best interest to proceed but simply they understand the consequences of borrowing.
I think we sometimes look for trouble where it really doesn't exist.
+2 #2 Stuart 2014-09-05 12:26
Does anyone blindly sign these things? I know I don't. I re-write them in a manner I can legally do so and have always done so. I have not had any problems with this over the years. I disclaim any legal advice on the contracts and deal with only the financial aspects based on what I have been told and has been submitted. I specifically exclude anything of a legal nature involving a loan documentation and any schedules that may be attached, plus any interpretations that may be involved. The standard documents that the Banks ask us to complete are a disgrace and I cannot imagine anyone being able to sign them as they are.
-1 #1 Michael Abraham 2014-09-05 12:18
Here's a way to make some money

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