The problem of lengthy loan discharges

It used to take just a few days to finalise a loan discharge and issue a certificate of title when Peter White AM worked at the bank decades ago.

Now, it takes lenders as long as 14 to 30 days to complete the process – despite it being an era of digital technology and centralised processing.

The veteran banker and managing director of the FBAA says it’s high time lenders adopted a standardised approach to loan discharge documentation – something that the industry has called for for decades.

Why is there such a long delay in loan discharges?

To White and many others in the industry, the reason for such long delays is unclear. Working in the banking and finance industry for more than 40 years, he recalls the days of manual processing in which he was responsible for doing loan discharges.

“These things only took a matter of hours and it was only really how long it took you to get through the pile,” he says.

“In a day of digital technologies and centralised processing, I struggle to understand why it would take that long.”

White’s concern is that banks are using this time to try and “keep clients on board with offers that weren’t freely given”.

“We do know that in past days, during these periods, the discharging lender’s customer service areas were onto customers, trying to retain the business,” he says.

“That is not acting in the customer’s best interest.

“Banks are not covered by the best interest duty but they have a moral and business obligation to do the right thing by borrowers.”

COVID-19 has heightened the problem

While this delay is not a new issue, White says it has been heightened by the pandemic.

“In a time when markets and people are hurting, these things escalate and jump to the fore,” he says.

“People are trying to rescue a business or restructure facilities so they can continue to make their repayments.

“When you have something like the impact of the coronavirus, this just makes the whole exercise that much more horrifying for a borrower and far, far more aggravating.

“It is heightened because of circumstances, and at the moment is creating all sorts of unnecessary angst and damage to people’s mental health by unnecessary delays.”

The effect on brokers

This is also having a direct impact on brokers, he adds, explaining that such delays can erode the hard work and goodwill they put into acting in their clients’ best interests.

While some lenders are claiming to put purchases in advance of others when processing discharges, White says, it can be very problematic for customers who do have to wait.

“If you’re waiting on a purchase, you can’t afford to have a delay on a discharge somewhere,” he says.

He says the delay could affect borrowers who are selling their home to purchase a new one, as well as clients who want to take advantage of cheaper rates through refinancing.

“Timing is all important,” he says, adding that some opportunities can be lost if there are unnecessary delays involved.

The length of wait-time varies across lenders, but the issue seems to be more prevalent across major and second tier banks.

“It doesn’t seem to impact the non-banking sector so much, but it does seem to impact the ADIs,” he says.

“There’s not a common line you can draw – these things tend to fluctuate. But there is a general norm that they take an unnecessarily exorbitant amount of time.”

A call for standardised documentation

He believes niversal standardised loan discharge agreements, loan application forms and privacy act forms would go a long way in improving processes for brokers and borrowers.

“It’s one of the issues that needs to be addressed because every lender has their own particular discharge form, or privacy act form or application form,” he says.

“It’s completely unnecessary and does create confusion. Brokers are pretty good with these sorts of things, but it’s just a myriad of things you’ve got to specifically ensure are done correctly or obtained correctly through solicitors.

“The more standardised things are, the more fluid it is, the more accurately things flow through a system.

“I see no reason why these things can’t be standardised and I think it’s high time our industry moved forward.”

He says the COVID-19 lockdown and the way lenders moved to allow digital VOI offers a good comparison.

“That’s one example of the necessity of the environment at the time; making something happen that should have happened ages ago,” he says.

“It’s the same with these series of documentations. We need to actively step up to the plate and get past our own little petty concerns and do the right thing by an entire industry so everybody benefits.”