If, in practice, brokers were to act in the best interests of borrowers, poor customer outcomes of the kinds identified by CBA in its submissions to the Sedgwick Review, and by ASIC in its March 2017 report, would be reduced. If, in practice, brokers were to act in the best interests of borrowers, there would be fewer cases where brokers act in ways that see lenders given wrong or incomplete information about the financial situation of loan applicants. (I emphasise the words ‘in practice’ because it will later be necessary to look at what can reasonably be expected to occur.) But the first, and in my view essential, step to take is to bring the law into line with what consumers expect. They expect brokers to act in their best interests. Brokers should be obliged to do so.
I consider that the law should be amended to provide that, when acting in connection with home lending, mortgage brokers must act in the best interests of the intending borrower.
As ASIC submitted, the content of the duty is best expressed ‘as a broad statement of principle’.[1] ASIC’s proposed drafting of the obligation as ‘to act in the best interests of the consumer [I might prefer ‘loan applicant’] in the selection and arranging of loans’ goes a long way to capturing the heart of the relevant ideas.[2]
Imposing this obligation would give statutory recognition to what borrowers currently expect of brokers. It is not an obligation that should affect the practices of lenders and, accordingly, it is not a change that should affect the price or the availability of credit, whether to consumers, small business borrowers or others. Nor should the obligation apply to aggregators, who have no direct relationship with the borrower and play no role in the selection or recommendation of the loan.[3]
The best interests obligation must be enforceable. Because it is a provision of the same kind and quality as the obligations on holders of an Australian financial services licence (AFSL) and holders of an ACL – to do all things necessary to ensure that the licensed activities are engaged in ‘efficiently, honestly and fairly’[4] – the best interests obligation should be enforceable by civil penalty. The maximum penalty prescribed should be at the level proposed by the ASIC Taskforce Review.[5]
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Recommendation 1.2 – Best interests duty The law should be amended to provide that, when acting in connection with home lending, mortgage brokers must act in the best interests of the intending borrower. The obligation should be a civil penalty provision. |
[1]ASIC, Interim Report Submission, 29 [130].
[2]ASIC, Interim Report Submission, 29 [130].
[3]See, eg, NAB, Interim Report Submission, 49 [208].
[4]NCCP Act s 47(1)(a); Corporations Act s 912A(1)(a).
[5]ASIC Taskforce Review, Final Report, December 2017, 58.