ASIC warns mortgage brokers on best interests

In September 2019, the Australian Securities & Investments Commission (ASIC) reported that one in 10 consumers who took out a home loan via a mortgage broker were finding it hard to meet their repayments within 12 months. ASIC’s research also found that although consumers generally expect a mortgage broker to secure the most suitable home loan for them, 58% were offered just one or two loan options by their broker, while many brokers recommended just one loan.

In February 2020, ASIC acted on recommendations from the Hayne Royal Commission and issued guidance on the new best interests duty obligations, in a bid to ensure that brokers do the right thing by customers.

Now ASIC has advised mortgage brokers that it will strictly enforce the requirement that they act in customers’ best interests. Legislation to impose the ‘best interests duty’ takes effect on 1 July, although ASIC will delay enforcement of the new rules until the start of 2021.

Amongst other things, mortgage brokers will be required to take into account the financial circumstances of each customer and closely scrutinise so-called cash-back offers from lenders:

Under the new laws, mortgage brokers will be required to keep detailed records for each client including a copy of the responsible lending assessment, a copy of the credit guide given to the client, information about the customer collected as part of the application and outcomes of applications.

Brokers will also need to record details of each conversation had with the customer, information showing how the broker acted in the best interests of the customer, the options and ultimate recommendation provided as well as any conflicts that arose and how they were mitigated…

ASIC commissioner Sean Hughes said the guidance was even more important in the present environment where banks and other lenders were competing aggressively on price.

“In a low-cost borrowing environment this guidance says you need to present a range of options to the customer and you need to make sure your advice is in the best interest of the customer and there are no other factors influencing your recommendation”…

The mortgage broking industry tried to fight-off these best interest rules, which currently apply to financial planners, but were unsuccessful. Now they have six months to adapt to the new regulatory regime.

Leith van Onselen

Comments

  1. Mortgage brokers and financial planners. Industries that tried to prevent legislation requiring them to act in their customers interests. Says it all really.

    • Indeed, though only one lobby group succeeded. And it was the one representing those with the loosest legislation and the most minimal of training and oversight.

  2. GlendaFMEMBER

    Of course they’re acting in ‘best interets’….for themselves, can you imagine a broker recommending a home loan that paid them less, than the others? They will just document it the way it needs to look, for the occasional audit, (if ever), and then it will be up to those who audit the documentation to go and check the legiticmacy of the documentation.
    Again, smoke and mirrors, no teeth.

  3. Jumping jack flash

    “…one in 10 consumers who took out a home loan via a mortgage broker were finding it hard to meet their repayments within 12 months.”

    Well, that could really be because of anything, not just the mortgage broker. People go to a mortgage broker because they are better at getting them the amounts of debt that are necessary. It is no secret that conditions haven’t exactly been rosy for the last 7 years. The debt hasn’t been growing fast enough to counter the deflationary effect of the debt. Certainly this is true for the past 2 or 3 years, at least.

    The solution to that problem is not further restricting the debt, it is solved by removing restrictions and getting more debt out there to the people!

    • SoMPLSBoyMEMBER

      “……and to be perfectly honest, we’re required to make sure our recommendation is in your best interest and will put you in a better place than before.”
      Your credit score is a beaut and that means you qualify for an $950,000 loan! (95% LVR)
      At the some of the lowest interest rates the country has ever seen! (2.19%)
      Drop in your $150,000 deposit and plan to spend 51% of your gross income on just the P & I! ($3223/mo)
      The ‘computer’ said its a go so all good- sign right here!
      We got your ‘best interest’ in mind!

      Another example of blaming the field rep instead of the ‘system’ when things get messy!

  4. This is a misguided policy. The additional administrative cost for the mortgage brokers will increase their cost and therefore push borrowers directly back to the banks who have no such obligations. A similar thing has happened in the financial advisory industry where pretty much you can now only afford to get financial advice if you have hundreds of thousands of dollars (at least) to invest.

  5. Reus's largeMEMBER

    As the regulators get their wet lettuce leaf orders in early to ensure they are as soft as possible for the whipping …..