Mortgage brokers will be required to satisfy themselves that recommending from within their lender panel is in the consumer’s best interests.
And they should be able to make a “holistic” assessment of other credit products packaged with a home loan in meeting the new best interests duty.
These are among the proposals included in draft guidance prepared by ASIC to give effect to new legislation that imposes a best interests obligation on brokers. The new duty, which applies from July 1, is in addition to responsible lending obligations
ASIC’s guidance includes its interpretation of the best interests obligation, its expectations for meeting those obligations and its approach the administering the system. It is seeking industry feedback.
The guidance is principles-based and does not include safe harbour provisions.
Information gathering. ASIC does not prescribe the appropriate information brokers should gather from their clients. Rather, it recommends a case-by-case approach.
It says: “The type and amount of information that a mortgage broker should gather to identify the consumer’s needs and objectives, and determine whether a credit contract will be in their best interests, varies depending on the consumer’s individual circumstances.”
Assessing best interests. ASIC recommends that brokers take a holistic view of products, with the cost of the loan a priority – interest rate, fees and charges and the size of repayments.
“We consider that cost is generally a factor brokers should prioritise. A failure to consider cost and investigate the lower cost options available to the consumer may be indicative of non-compliance.”
Non-cost considerations, such as loan features and accessibility, should also be assessed for the net benefits they offer.
Presenting information and recommendations. ASIC wants brokers to tailor the way they present product options and recommendations “to account for the consumer’s expectations”.
It is also emphasising the educative role of mortgage brokers. ASIC says it is important that consumers are helped to understand the options presented.
The legislation does not prescribe how many options should be presented to consumers. But ASIC says “some practices are not consistent with acting in the consumer’s best interests.”
It cites consumer research which shows that 58 per cent of consumers receive only one or two loan options.
Interaction with responsible lending obligations. According to the information memorandum accompanying the bill – Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers (2019 Measures)) Bill 2019 – “there are circumstances where the mortgage broker may not have acted in a consumer’s best interests even if the responsible lending obligations were complied with.
“For example, even if a home loan product is ‘not unsuitable’, recommending it to the consumer might not be in the consumer’s best interests.”
ASIC says meeting responsible lending obligations is not necessarily sufficient to discharge a duty to act in someone’s best interests.
Brokers should be able to satisfy themselves that recommending from within their panel is in the consumer’s best interests. Consumers should be informed about which credit providers the broker has access to and which they do not.
Range of credit products. The broker must act in the best interests of the consumer not only in relation to the mortgage but also in relation to any other credit contracts for which they provide credit assistance. These might include credit cards and personal loans.
Brokers will be required to assess other credit products packaged with a home loan in meeting the new best interests duty.
