Our ‘Best Interests Duty’ Mortgage Brokers
Have you ever worried about whether or not you can trust a broker? If so, you’re not alone, but that doesn’t have to be the case. In May 2020, the Australian Securities and Investment Commission (ASIC) announced that reforms were coming to the National Consumer Credit Protection Act 2009 which regulates the mortgage broking industry in Australia. These reforms, known as ‘Best Interests Duty,’ have been put in place to protect borrowers and offer greater reassurance that their ‘best interests’ are always being cared for.
What is ‘Best Interests Duty’?
The ‘Best Interests Duty’ is a regulatory guide for Australian mortgage brokers and credit licensees. It is composed of two central principles:
1. That mortgage brokers should always act in the best interests of consumers.
2. That mortgage brokers prioritise consumer interests when providing credit assistance.
Collectively, these are referred to as the ‘Best Interest Duty’. According to the official regulations, the aim of ‘Best Interests Duty’ is to “give statutory recognition to consumers’ expectations”. In other words, borrowers expect that mortgage brokers will always act in their best interests, and now there are legal ramifications if a mortgage broker fails to do so.
When did ‘Best Interests Duty’ begin?
The ‘Best Interests Duty’ was proposed off the back of the Royal Commission into Banking, with the final legislation being approved in February 2020. While originally slated to begin on 1st July 2020, this was later delayed due to the initial fallout from the COVID-19 pandemic. As a result, the ‘Best Interest Duty’ officially became active on 1st January 2021.
How are consumer ‘best interests’ determined?
Rather than leave this up to the opinion of each individual broker, ASIC has been very clear in spelling out how consumer best interests should be determined in their ‘Regulatory Guide 273’. This guide states that a broker must, first of all, gather relevant information about the consumer. They can then make an individual assessment, before presenting their findings and recommendations to the consumer. An assessment of what is in the best interests of a person should include the various costs associated with a product, including rates, fees, repayments and charges. Additionally, the broker needs to evaluate whether or not the features of the loan will provide the consumer with good value when compared with other options.
Do banks have to comply with ‘Best Interests Duty’?
No. While mortgage brokers are legally obliged to always act in the best interests of their clients, this regulation does not apply to banks. So, if you decide to approach a bank directly for a loan, the bank is well within its rights to act entirely in their own best interests, even if this is to the detriment of the borrower.
How will the new ‘Best Interest Duty’ benefit borrowers?
The ‘Best Interest Duty’ spells out the obligations of a broker in black and white, leaving no room for ambiguity. This means that you can now have real confidence when approaching a mortgage broker for assistance in obtaining a home loan. You no longer have to worry about whether or not you can trust a broker. You can have the peace of mind that comes with knowing that your broker is firmly on your team, working in your best interests, and recommending a product that is going to offer the best outcome for your personal needs.