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06-093 ASIC stops misleading reverse mortgage advertising
ASIC has called on all reverse mortgage providers to ensure that their advertising material is clear and accurate, following its action against a credit union in relation to the misleading promotion of a reverse mortgage product.
ASIC has accepted an enforceable undertaking from Transcomm Credit Co-operative Limited (Transcomm) after an investigation found the credit union’s advertising material featured claims that its Annuity Plus Reverse Mortgage product had:
- ‘no impact on pension entitlements’;
- ‘the most competitive interest rates of any reverse mortgage’ and ‘lower fees and charges’;
- ‘an inbuilt safety measure’ to guard against ‘runaway’ or ‘negative equity’; and was
- ‘designed so that the final balance owed will not exceed 50 per cent of the estimated future value of your property’.
ASIC considered the statements, as well as the overall message of the advertisements, to be misleading because they:
- included false claims about the product’s impact on pension entitlements and its competitiveness, and
- misrepresented the extent to which consumers’ interests were protected by some of the product’s design features.
ASIC’s Deputy Chairman, Mr Jeremy Cooper, said the Transcomm product was recently awarded ‘Reverse Mortgage Product of the Year 2005’ by Personal Investor Magazine, but has a number of features that differ from most reverse mortgages which may result in borrowers being disadvantaged.
‘The Annuity Plus Reverse Mortgage allows Transcomm to reduce the amounts advanced to borrowers and, in some circumstances, even require early repayment. Unlike other reverse mortgages, the product is a fixed-term loan meaning consumers are likely to have to repay the loan in their lifetime,’ Mr Cooper said.
‘It’s also important potential borrowers are made aware that this product does not have a no negative equity guarantee. Put simply, this means borrowers may eventually owe more than the value of their property. This is a good example of the need for consumers to understand the product they are considering.’
Under the terms of the enforceable undertaking, Transcomm will:
- refrain from making the misleading claims in any future advertising or promotional material;
- place corrective advertisements on its website at www.transcomm.com.au;
- provide existing borrowers with an opportunity to undo their loans and to claim compensation for any loss suffered in reliance of the representations; and
- implement a compliance program concerning all future advertising material and legal documents.
‘ASIC will continue to keep a close eye on the promotion of reverse mortgages and will be particularly vigilant, as in this case, where the product has some features that have the potential to harm consumers which are either not disclosed or misrepresented,’ Mr Cooper said.
‘We will also continue to work with the reverse mortgage industry group, SEQUAL, to encourage industry moves to address consumer concerns,’ he added.
Typically, a reverse mortgage allows you to borrow money secured against your home, without having to pay back either the amount you borrowed or the interest due until you leave your home or die. Instead, your debt and interest build up (or compound) over time. They are generally restricted to senior Australians.
End of release
- the enforceable undertaking
- ASIC's report on equity release products
- more on equity release products on FIDO website (replaced by MoneySmart)