How to identify collusion between clients and third parties on loan documents
In a higher interest rates and inflation environment with more pressure on borrowing power and loan serviceability, aggregator Connective is warning brokers about the likelihood that more clients might fabricate documents to get their loan applications over the line.
Connective, which has broker members across the nation in the residential, asset and commercial lending sectors, is urging brokers to be vigilant when it comes to fraudulent applications.
Group legal counsel Daniel Oh (pictured above) said brokers need to be more aware and thorough when verifying client documents to identify and combat potential collusion between clients and third parties.
He said prioritising compliance as part of their daily process was the cornerstone for brokers mitigating risks in loan applications.
“Firstly, brokers should be reviewing the client’s documents carefully as part of the application process and to identify potential collusion,” said Oh. “These documents include payslips, rental appraisals, bank statements, notice of assessment, accountant letters, and employment letters.”
Oh warned that Brokers could jeopardise their accreditation with a specific lender when they submitted an application without thorough review.
Under the National Consumer Credit Protection Act, brokers have an obligation to make reasonable inquiries, he said. However, Connective found that brokers did not always escalate concerns sufficiently.
“We’re often asked by our brokers what constitutes a ‘reasonable inquiry’, and how they can escalate inquiries,” Oh said. “There is no simple answer, but we do remind brokers not to rely solely on information provided by your client.”
Connective points out red flags
The aggregator identified a number of red flags brokers should be on the lookout for.
Payslips
Oh said when verifying payslips, brokers should be alert to inconsistencies in the ABN details, superannuation fund member details, and bank disbursement details such as the amount, description and date.
“The devil is in the detail. Mismatched fonts, spelling errors, or any discrepancies should prompt further investigation. The Fair Work Ombudsman website provides clear guidelines on what information a payslip must contain. If in doubt, the first step is to query the client directly.”
Connective recommended that brokers should employ a multi-faceted approach to verification.
Oh said this meant verifying employment directly with the employer, including salary and position, and obtaining bank statements to confirm salary deposits.
“Consider requesting an employment letter or contract. A Google search of the company, the business, or the applicant's social media presence can also be insightful.”
Documents from third parties
Oh advised brokers to “apply a healthy level of scepticism” when assessing documents from third parties such as accountants.
“Brokers can instantly verify accountant credentials with the Tax Practitioners Board's free register or reach out to third parties directly to confirm,” he said. “Be aware of any non-arm's length relationships between the parties as it requires lender disclosure due to heightened risk.
“Watch for unusual client behaviour – do their actions or overinvolvement ring alarm bells?”
Excessive pressure to expedite the application or reluctance to provide necessary documents can be signs the applicant may not be genuine, Oh said.
“Even a slight doubt warrants a further check until you’re satisfied – and always document your inquiries for your records.”
Four steps to detect collusion
Connective identified four key steps that brokers should take when it came to detecting potential collusion in lending applications:
- Scrutinise supporting documents: Oh said brokers should watch for inconsistencies in payslips, bank statements, and documents from third parties. Red flags include mismatched ABN details, missing tax agent information, unrealistic income compared to the applicant's role, formatting errors, and inconsistencies across documents.
- Multi-layered verification: Obtaining documents is only the first step, so don't just accept documents at face value, said Oh. Verify details with employers directly, check accountant credentials with the Tax Practitioners Board register, and conduct online searches to confirm the legitimacy of businesses and individuals involved.
- Escalate to be sure: Understand the concept of "reasonable inquiries" under the National Consumer Credit Protection Act (NCCP). If inconsistencies arise, escalate your concerns by contacting relevant parties and document all inquiries made, said Oh.
- Be wary of pressure to fast-track: Oh said brokers should be extra cautious around clients who pressure you to rush the application or seem reluctant to provide necessary documents. A genuine applicant should be comfortable.
Oh has previously highlighted the growing number of brokers who were being defrauded by cyberscammers during the height of the Covid pandemic, using “man in the middle attacks”, where hackers gains access to a victim’s email account and tricks their contacts into thinking they are requesting a funds transfer.
He has also educated Connective brokers about the legal pitfalls of social media use and the importance of maintaining strong privacy practices to safeguard clients’ personal information.
Are you seeing a rise in potential fraudulent information on loan applications and collusion between clients and third parties? Share your comments below.
