A broker on a refinance, and the duty to weigh staying

Who the duty binds, and since when

Mortgage brokers have had to comply with the best interests obligations from 1 January 2021. Under section 15B of the Act, a licensee is a mortgage broker if it runs a business of credit assistance for loans secured by mortgages over residential property, is not the credit provider for most of them, and helps with loans from more than one credit provider.

The duty covers only credit regulated by the National Credit Act, which ASIC describes as credit for personal, domestic or household purposes, or to buy or improve residential investment property. It does not reach non-credit products such as insurance, and ASIC says a broker offering those must not imply that the duty applies to them.

The duty sits on top of responsible lending. ASIC calls the two distinct and complementary, and says the duty can require steps that responsible lending does not. A broker that holds its own credit licence must meet both; a broker that is a credit representative must meet the best interests duty and may need to help its licensee meet the responsible lending obligations. RG 273 notes that the responsible lending inquiries must be made within 90 days of the credit assistance being provided.

Four questions RG 273 puts to a switch

1. Has staying been weighed?

   RG 273 says a broker must not suggest that you remain in a credit contract without considering whether that is in your best interests. The Act draws a firmer line in section 124:

   “A licensee must not provide credit assistance to a consumer by suggesting that the consumer remain in a particular credit contract with a particular credit provider if the contract is unsuitable for the consumer under subsection (2).”

   National Consumer Credit Protection Act 2009, section 124(1)

   Under subsection (2), the contract is unsuitable if, when the help is given, you are, or are likely to be, unable to meet your obligations under it or able to meet them only with substantial hardship, or if it does not meet your requirements or objectives. The section gives a defence where the licensee suggested staying because, after reasonable inquiries, it reasonably believed there was no other credit contract that was not unsuitable for you, and it told you the National Credit Code has a procedure for consumers in hardship, in sections 72 and 94. Refinancing when repayments are hard follows that procedure.

2. Has cost come first?

   ASIC generally expects a broker to prioritise what a loan costs, meaning its interest rate, its fees and charges and the size of its repayments, because cost can shape what a borrower achieves, including goals unrelated to the loan. Not considering cost, or not looking into the lowest-cost options open to you, may suggest the broker has not complied, and recommending a dearer loan needs evidence showing why it is in your best interests.

3. Were you shown more than one option?

   ASIC asks brokers to assess each consumer’s needs case by case and decide how many options to give, and calls more than one option good practice unless there is a good reason not to. Moneysmart says a broker should present more than one option, and suggests asking how each works, what it costs and why it is in your best interests. It adds that you do not have to take the first loan you are offered.

4. Is the application accurate?

   A broker that puts incomplete or inaccurate information into a home loan application is not acting in your best interests, ASIC says, even if the error would make approval more likely or win better terms. Where critical information about your circumstances has not been gathered, ASIC says a broker should not make a recommendation.

What the duty cannot be traded for

A notice or a disclaimer cannot remove the obligations, whether or not you sign it, and a broker cannot meet them simply by having you consent to some credit assistance or to a conflict of interest. Nor is there a ‘safe harbour’: the Act does not list steps that count as compliance, so a broker has to take every step needed to act in your best interests.

If a broker cannot act in your best interests, it must not provide the assistance.

Checking the broker

Before meeting a broker, Moneysmart says to make sure it holds a credit licence or is a representative of a licensee. ASIC’s registers also let you search people banned or disqualified from roles in the credit industry. Brokers must give you information about the commissions they may receive; the credit guide and the quote shows where those figures appear.

If something goes wrong, Moneysmart’s steps run from a written complaint to the broker’s business to AFCA, the Australian Financial Complaints Authority. The detail is in complaints about a refinance.