The mortgage broker best interests duty: what it actually requires

The best interests duty is not industry custom or a marketing promise — it is a statutory obligation in Part 3-5A of the National Consumer Credit Protection Act 2009. Parliament inserted it through the Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers (2019 Measures)) Act 2020, implementing Recommendation 1.2 of the Financial Services Royal Commission, along with the accompanying reforms to broker remuneration. Mortgage brokers have had to comply since 1 January 2021; ASIC had deferred the original 1 July 2020 start date by six months because of COVID-19.

The guide to Part 3-5A (s 158K) sets out the scheme in four sentences: mortgage brokers must act in the best interests of consumers when providing credit assistance; where there is a conflict of interest, they must give priority to consumers; brokers and mortgage intermediaries must not accept conflicted remuneration; and employers, credit providers and mortgage intermediaries must not give it.

The duty is not limitless in scope. RG 273.5 confirms it applies only to credit products regulated under the National Credit Act — credit provided to consumers for personal, domestic or household purposes, or to purchase or improve residential investment property. Commercial lending sits outside it.

The Act states the obligation but does not prescribe a method. ASIC’s RG 273 fills that gap by explaining what it looks for when assessing compliance, and Table 1 of the guide sets out the steps a broker may need to take. It is a process standard, not a results standard — but the process is demanding, and it must be evidenced.

On cost, RG 273.51 is explicit: ASIC “generally expect[s] the cost of a credit product—such as interest rate, fees and charges and the size of repayments—to be a factor that mortgage brokers should prioritise”. RG 273.54 goes further, warning that a failure to consider cost and investigate “the lowest cost options available” may suggest non-compliance, and that any recommendation of a higher cost loan “will need to be supported by evidence demonstrating why that recommendation is in the consumer’s best interests”. RG 273.56 supplies the necessary caveat: the product with the lowest interest rate is not necessarily the lowest cost overall — which is precisely the reasoning behind the comparison rate and its limits, covered in our comparison rate resource.

Two structural expectations follow. First, RG 273.113: ASIC expects a broker to be accredited with a reasonably representative panel of credit providers, and to consider whether the composition of that panel is sufficient to meet consumers’ best interests. Second, RG 273.95: if all the options presented come from the same credit provider, the broker should say so and explain why.

Sections 158LB and 158LF go beyond requiring conflicts to be managed. Where the broker knows, or reasonably ought to know, that there is a conflict between the consumer’s interests and the interests of the licensee, an associate of the licensee, a representative or an associate of a representative, the broker must give priority to the consumer’s interests when providing the credit assistance. Priority — not balance, and not disclosure.

This is where the duty departs sharply from the older disclosure-based model. RG 273.28 notes that the National Credit Act does not set out circumstances in which a broker is taken to have complied — there is no safe harbour to shelter in. RG 273.14 closes the other exit: “The best interests obligations cannot be avoided by any notice or disclaimer provided to or signed by the consumer. A mortgage broker cannot comply with these obligations merely by getting the consumer to consent to certain credit assistance or a conflict of interest.”

Nor can the scheme be engineered around. Section 158T prohibits entering into or carrying out a scheme for the sole purpose — or a purpose that is not incidental — of avoiding the application of any provision of Part 3-5A, and RG 273.181 notes that a person may be liable for a civil penalty for breaching it.

Section 158N defines conflicted remuneration as any benefit, monetary or non-monetary, given to a licensee or representative who provides credit assistance that, because of the nature of the benefit or the circumstances in which it is given, could reasonably be expected to influence the credit assistance provided to consumers. Sections 158NB and 158NC prohibit brokers, mortgage intermediaries and their credit representatives from accepting it; ss 158ND–158NF prohibit employers, credit providers and mortgage intermediaries from giving it. Each ban carries a stated civil penalty of 5,000 penalty units.

That ban does not outlaw commission. It outlaws the shapes of remuneration that could distort a recommendation. Part 3-9 of the NCCP Regulations 2010 sets out the conditions on which a monetary benefit — a lender-paid commission — is not conflicted remuneration.

The practical consequence is that a broker’s remuneration is structurally tied to the loan the consumer actually uses, not to the volume of business sent to any particular lender. In most residential lending scenarios, the lender pays broker commission. We explain remuneration in our Credit Guide.

The duty attaches to the role, not to the transaction. Under s 15B, a licensee is a mortgage broker if it carries on a business of providing credit assistance for credit contracts secured by mortgages over residential property; it does not perform the obligations, or exercise the rights, of a credit provider for the majority of those contracts; and, in carrying on that business, it provides credit assistance for credit contracts offered by more than one credit provider. The Part 3-5A obligations apply only where the licensee or credit representative is a mortgage broker (ss 158L and 158LD).

Read that definition carefully and the consequence follows: a lender’s own staff selling that lender’s own loans directly are not mortgage brokers, and the statutory best interests duty does not apply to them. That is a genuine structural difference between the two channels — not a claim that either channel produces a better result for any particular borrower. Our guide on mortgage brokers and banks sets out the practical differences.

What both channels share is responsible lending. RG 273.22–273.24 make the relationship clear: the best interests obligations operate alongside the responsible lending obligations and do not alter them. They are distinct, complementary duties — the best interests duty introduces requirements and steps that are additional to responsible lending, and a broker must comply with both. Meeting the “not unsuitable” responsible lending standard is therefore not, by itself, evidence that the best interests duty has been met.

Where a broker operates as a credit representative under another entity’s Australian Credit Licence, s 158LE applies the duty directly to the representative and s 158LE(2) requires the licensee to take reasonable steps to ensure the representative complies. Our own arrangement is described in our Credit Guide and explained in credit representative arrangements explained.

Two disclosure documents are compulsory. Under s 113, a credit assistance provider must give you its Credit Guide as soon as practicable after it becomes apparent it is likely to provide credit assistance. It must be in writing and must include the licensee’s name, contact details and Australian credit licence number; information about fees payable by you; the names of the (up to six) credit providers with whom the licensee conducts the most business; information about any indirect remuneration such as commissions the licensee or its representatives are likely to receive from credit providers — including a reasonable estimate of the amounts or ranges and the method used to work them out; and the licensee’s dispute resolution procedure, with contact details for internal dispute resolution and the AFCA scheme.

Under s 121, at the same time as providing credit assistance — for example, when suggesting you apply for a particular credit contract with a particular credit provider — the licensee must give you a credit proposal disclosure document. It must contain the total of any fees or charges payable by you to the licensee, a reasonable estimate of the total indirect remuneration the licensee or its people are likely to receive in relation to that credit contract and the method used to work it out, and reasonable estimates of fees payable to the credit provider and to other parties. Both provisions carry a stated civil penalty of 5,000 penalty units.

AFCA’s own guidance is that the usual first step is to raise the problem with the financial firm directly, which is why the sequence above matters. This resource does not state time limits for internal dispute resolution responses or for lodging with AFCA — those were not verified at the review date, so check the current requirements with the licensee and with AFCA rather than relying on a remembered figure.