In the Australian legal sphere, brokers shoulder a significant responsibility known as the ‘duty of care’ to their clientele.
With the enactment of the NCCP Act, brokers assumed statutory obligations pertaining to loan suitability. However, it’s important to note that these obligations did not explicitly account for the best interests of their clients.
In 2020, prompted by recommendations stemming from the Banking Royal Commission, pivotal amendments were introduced to the NCCP Act. These amendments aimed to establish unambiguous expectations for brokers when providing services on behalf of their clients. It’s worth mentioning that, initially, these amendments exclusively applied to mortgage brokers, mandating them to act in the best interests of consumers. Currently, there’s an ongoing discourse about extending these regulations to encompass all providers of credit assistance.
To assist mortgage brokers in effectively navigating their best interests obligations under the revised NCCP Act, ASIC has published Regulatory Guide 273 (RG 273), titled ‘Mortgage Brokers: Best Interests Duty.’ This guide offers comprehensive guidance on the practical application of these obligations.
RG 273 concisely delineates the core obligations linked to the best interests duty:
- Prioritising Consumer Interests: Mortgage brokers are mandated to prioritize the best interests of each individual consumer receiving credit assistance (RG 273.16).
- Addressing Conflicts of Interest: In cases where conflicts of interest arise during the provision of credit assistance, mortgage brokers are duty-bound to give precedence to the consumer’s interests, refraining from favoring their own interests or those of credit providers or third parties (RG 273.9).
- Prohibition on Schemes and Conflicted Remuneration: RG 273 enforces a prohibition on schemes devised by mortgage brokers and intermediaries aimed at circumventing the application of best interests obligations. Additionally, it imposes a ban on conflicted remuneration (RG 273.10).
The legislation operates on principles rather than rigid, step-by-step instructions, placing the responsibility on mortgage brokers to ensure their conduct aligns with the overarching principle of ‘acting in the best interests of consumers’ within the specific context (RG 273.12).
To shed light on the application of the best interests duty, consider these illustrative examples:
- Borrowing Limits vs. Interest Rates: Mortgage brokers may grapple with the dilemma of whether to prioritize securing the maximum loan amount for a client’s home purchase or align with the client’s preference for the lowest possible interest rate. The broker’s recommendation can yield divergent ‘best interests’ outcomes, necessitating a delicate balance.
- Fixed vs. Variable Rates: Imagine a scenario where a client opts for a low-interest fixed-rate loan that eventually shifts to a standard variable rate at the end of the fixed term. This transition may result in a higher overall rate compared to lenders offering consistently lower rates. Surprisingly, recommending a higher initial rate loan might, in the long term, better serve the client’s ‘best interests.’
How to Contest a Broker’s Actions
If you believe a mortgage broker has not operated in your best interest and wish to voice your concerns, there are steps you can take:
- Contact the Broker: Start by discussing your concerns with the broker directly. They may not be aware of your dissatisfaction and could be willing to address your issues.
- Lodge a Complaint with the Brokerage Firm: If the issue persists, reach out to the brokerage firm that employs the broker. They often have internal procedures in place to handle client complaints.
- External Dispute Resolution: If you remain unsatisfied, you can escalate your complaint to an external dispute resolution scheme like the Australian Financial Complaints Authority (AFCA). AFCA provides a platform for resolving disputes between clients and financial service providers, including mortgage brokers.
While aggregators and licensees equip mortgage brokers with checklists to facilitate compliance with their obligations, real-world situations often demand a personalised assessment of each borrower’s unique circumstances. In certain instances, brokers may opt not to provide credit assistance if they determine that doing so would run counter to the best interests of the customer. This underscores the intricate nature of navigating the best interests duty within the mortgage brokerage landscape.