THE Rudd Government will give the $21 billion margin lending industry three weeks to digest a proposed overhaul of the regulatory and legislative regime.
The Minister for Corporate Law Nick Sherry will today release a draft copy of the legislation with a view to introducing it into parliament next month.
The legislation includes new national laws to regulate margin lending under a standard national regime, reports The Australian.
Margin lending is not currently regulated in Australia and is considered to have been one of the main destroyers of investor wealth as the stockmarket collapsed last year.
It cost some investors their homes as their margin lending accounts blew up, triggering margin calls many couldn’t afford to pay.
Mr Sherry said yesterday taking out equity on a family home was a key area of interest to the Government.
“One area where we have had a high level of concern has been where people have been advised to take equity out of their family home and then to use this debt to leverage into buying shares through a margin loan.
“This double-debt trap, with a home as security, is of serious concern,” he said.
“Under our new responsible margin lending laws the lender will be required to assess a person’s true loan-to-value ratio
“This means the lender can no longer assume the money brought to the table is not itself debt, a major new improvement” that would reduce the risk of people losing their homes.
Properly geared margin lending, backed by full disclosure, had a place, but the Rudd Government would not tolerate ordinary Australians being misled into grossly inappropriate margin loans that could cost a family everything they owned, including their home, he said.
Under the new laws, lenders will be regulated by the Australian Securities and Investments Commission and be required to hold an Australian Financial Services Licence, be members of low-cost external dispute bodies, clearly disclose fees and commissions before lending, and lend under a tailored margin-lending-specific set of responsible lending obligations.
Between June last year and December 30, the number of margin calls received by 205,000 Australians with margin loans increased 458 per cent, as the share market dropped 40 per cent.
http://www.news.com.au/perthnow/money/story/0,26926,25441887-5015860,00.html
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