A mortgage broker’s duty, and the papers that show it

“The licensee must act in the best interests of the consumer in relation to the credit assistance.”

National Consumer Credit Protection Act 2009, section 158LA

Section 158LB adds that if a broker knows, or reasonably ought to know, of a conflict between the consumer’s interests and its own or those of its associates or representatives, it must give priority to the consumer’s interests.

ASIC says the obligations are high-level principles that do not contain prescriptive steps to follow, and that inquiries become more important, and may need to be more detailed, when a borrower’s financial capability is low or the proposed loan or its structure is complex.

These, and the duty above, apply when a broker helps an individual or a strata corporation with credit the National Credit Code covers: credit wholly or mainly for personal, domestic or household use, to buy, renovate or improve residential property for investment purposes, or to refinance credit that was provided wholly or mainly for such an investment purpose. They do not apply when the borrower is a company, or to help with a loan wholly or mainly for a business.

1. As soon as practicable

   The credit guide

   Once it becomes apparent that the broker is likely to help, it must give its credit guide, in writing. The guide must give the broker’s name, contact details and Australian credit licence number; its fees and how they are worked out; the lenders it deals with (all of them if six or fewer, otherwise the six it believes it does the most business with); a reasonable estimate of the payments it and its people are likely to receive from lenders (the Act calls them indirect remuneration); and how to reach its internal dispute resolution and AFCA.

2. Only if the broker charges a fee

   A written quote

   Moneysmart says lenders generally pay brokers a commission, so borrowers often do not pay them directly. Where a broker does charge a fee, Moneysmart says it should be set out in a written quote, the quote must be signed before the broker provides services and asks for payment, and the broker cannot ask for the fee before providing its services. The Act also bars a broker from lodging, or threatening to lodge, a caveat over land to make a consumer pay for its help.

3. Within 90 days before suggesting a loan

   The preliminary assessment

   Before suggesting a particular loan with a particular lender, the broker must have made inquiries and verification and a preliminary assessment of whether the loan would be unsuitable, within the previous 90 days unless the regulations set another period. On request, it must give a written copy: within 7 business days if asked within 2 years, and otherwise within 21 business days, for requests up to 7 years later. The 2 and 7 years count from the date of the broker’s quote; the 7 or 21 business days count from the day the broker receives the request. The broker must not ask for payment for the copy. More on that assessment is in responsible lending when the income is your own business’s.

4. At the same time as suggesting a loan

   The credit proposal disclosure

   When the broker suggests a particular loan, it must give a credit proposal disclosure document setting out the fees payable to the broker, a reasonable estimate of the indirect remuneration it and its people are likely to receive for that loan, reasonable estimates of the fees for applying payable to the lender and to anyone else, and, if those amounts are to be paid out of the loan, a reasonable estimate of how much credit will be left.

A credit guide names a broker’s lenders, and ASIC’s guidance explains why that list matters to the duty. ASIC says:

• a broker must be satisfied that the products it can access and recommend are sufficient to act in its consumers’ best interests;
• it should be accredited with a reasonably representative panel of lenders, the size of which can vary with the market it works in;
• if a consumer is interested in a lender named in the marketing material of the broker’s aggregator (the business that links brokers to lenders) but the broker cannot access that lender, it should tell the consumer so;
• and if it is not satisfied the products it can reach will let it act in a consumer’s best interests, it must not provide the help, and may find it useful to refer the consumer to a broker better placed to assist.

One of ASIC’s own examples turns on this: a new broker with a limited panel helps a borrower buying a small studio apartment, notes that not all lenders may be willing to finance one, researches more widely, and seeks accreditation with the lender whose product suits before recommending it. Moneysmart suggests asking a broker directly: “What kind of lenders can’t you access?”

Moneysmart’s page on using a mortgage broker shows how to check a broker’s credit licence and the steps for a complaint, and the broker’s credit guide must already say how to reach both its own dispute process and AFCA.