Fortunately the good 'ol days are dead and buried

We all know about the GFC, it gets blamed for everything from the budget wipe out to the hole in the ozone layer, but what real world effect has it had on our lending abilities today, and more importantly what have we learnt from it?
We all know about the GFC, it gets blamed for everything from the budget wipe out to the hole in the ozone layer, but what real world effect has it had on our lending abilities today, and more importantly what have we learnt from it?

Smarter people than me on breakfast TV shows and the likes now tell us now they could see it coming for years and it was all avoidable if only people listened to them, but I can tell you as someone who sat at the coal face of the finance world before, during and after I couldn’t see it coming.  Reflecting on the way the finance industry operated then compared to the highly regulated machine it is today, it is really pretty obvious it couldn’t go on for ever, it was a slow motion road smash about to happen.

In 2006 / 2007 my job was a lot easier.  The joke these days is all you needed back then to obtain credit was a heartbeat and a payslip, and sadly that was pretty true.  No checks were really required, if someone said they did something, regardless of how true it was, it was taken for the most part by the industry as a whole as gospel.  Teenagers with shiny new Drivers Licenses, still warm from the laminator were getting brand new $50k cars without anyone raising a sweat and corrective credit after a financial mishap wasn’t even heard of.

Governments are very good at making laws and regulations to protect us from ourselves.  I can’t say I agree in a lot of instances with the Nanny State mentality, but I have to say now with the introduction of the National Consumer Credit Protection act, and in particular the Responsible Lending Practices across all facets of lending was a particularly good move.  It was born of the mistakes made in ‘the good old days’ and is a pretty stringent set of rules to prevent a meltdown like the GFC ever happening again.

What does it mean from a Brokers point of view day to day? For the most part those who can’t afford a loan they are consciously trying to get, can’t get it. Unfortunately there is, and always will be, a portion of society that needs protection from itself.  Some of the more finely tuned and well restrained individuals reading this will say ‘don’t be stupid, if you can’t afford it you don’t buy it’, and luckily there is still a good proportion of the population that lives by this mantra.  For those who don’t and prefer to live by the seat of their pants, no longer can you buy now and worry later about how you will make those repayments. If it isn’t obvious to Blind Freddy you can comfortably afford what you want to get, now and into the unforeseeable future, you simply can’t get it.  It is sad to report, but I still see these people everyday, and much to their disgust we are here to say sorry, that is not the right thing for you to do for your financial situation, a sentiment that doesn’t go down so well on some occasions.  But that is the state of play, we as licensed educated financial professionals are responsible to ensure our assistance is accurate and appropriate.

I know my opinion is probably a sore one among the old school broker community.  The new regulations have caused a significant drop in profits and really made the industry, as a long-term career choice, a damn side less attractive. We are all now required to be licensed, trained, accredited, diligent and an accountable group of hard working individuals and organisations. Really none of these changes ever worried me and I’ll explain why in a minute.  The reason I think the new laws are a good thing? It has weeded out a lot of the cowboy brokers that were in it to make a quick few dollars and pay no regard to the long term effects of what they were assisting people to do.  The decisions and papers signed day in day out would effect people for up to 7 years into the future, sometimes these effects could be devastating, just because someone wants something doesn’t mean it is the right thing for them to be able to obtain it, and really that is the crux of these new laws.  

The new rules haven’t changed my business’s loan process greatly.  We haven’t ever operated on a sausage factory style of brokerage where we just got the applications in front of us and threw them to any lender with a door open to get the quickest and easiest response and repeat.  I am proud to say we have always believed in the strength and power of integrity, and while it was not required we always cross checked and investigated information given to us before we supplied it to a lender, if for nothing else to make sure we displayed trust, integrity and professionalism to everyone involved in the transaction.  For this reason the new laws haven’t shaken our world too much at all, we were used to doing more than just copy loan applications into a computer system and get an answer.  I think the brokers out there still griping about the new regulations obviously had to change their mode of operation significantly and it still stings.

So, have the laws really worked? Sort of.  Unfortunately not every aspect of the ‘Loan Assistance’ avenues available to consumers have to follow these rules yet, but it is coming.  This unfortunately leaves a fairly large hole in the industry for the mean time open to abuse.  In broker land it has separated the men from the boys, and I think we have finally started to see some of the dinosaurs that are refusing to lose old habits dry up on the vine. This is leaving the hardworking, decent people to give educated advice to people seeking financial assistance and as a whole make our industry look and feel a lot more Professional.

Is the average consumer better off? Definitely.  Those that were highly financeable would have seen no difference with the introduction of the new regulations, those middle class hard working mums and dads have for the most part realised by themselves they need to purchase more conservatively in all aspects of their life so they probably haven’t seen the effects of the laws first hand and those individuals across all financial demographics that insist on living beyond their means have been stopped in their tracks.  The people in the last group won’t agree with me that they are better off, but then that is the nature of the beast when it comes to keeping up with the Joneses….

Because people are less likely to be able over commit themselves, loan arrears across the board have not soared with ever increasing living costs, but remained steady.  Why do you care I hear you ask, you have never been in arrears on anything?  Because for a very scary few months in 2007 there was chatter and talk across all manner of finance companies and banks that they would put a kink in the hose on all lending because it was becoming too risky, too difficult to raise the funds to lend out and in the most part all too much of a pain for the return.  If something, and more importantly, some brokers and lenders behavior’s didn’t change, getting a car loan today would have been only for the very wealthy and asset rich, leaving the everyday people like you and me high and dry.  This would have had obvious knock down effects across all manner of housing and automotive industries across Australia.

I am happy to report, from my point of view, that there seems to be an ever-increasing confidence coming from the lenders.  The playing field has been levelled and they don’t need to spend their days looking over their shoulder for people trying to exploit the system.  The regulations have forced all Brokers to pull up their socks and I think the industry as a whole has got a better name for it.  We are now seen as people who you can trust for quality advice and real assistance to obtain the most suitable lending facility to suit your needs now and hopefully all things going well into the future.  We are all-accountable for our actions and have real responsibility to ensure any assistance given is in the best interest of you, the consumer.

So say goodbye to the 'good old days' and hello to the new era of Finance Broking! Cars in particular have never been cheaper, interest rates are as low as they have been for many peoples lifetimes, and Professional brokers are here to ensure you get the best quality advice possible and guidance in the right direction to ensure we never see a mess like the GFC again.  Bring on 2014 and more transparent long term Broker to Customer relationships being built day in day out.
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