Treasurer Josh Frydenberg has backed the federal government’s newly proposed best interests duty on mortgage brokers, stating that he is confident it will “improve outcomes for consumers”.
The Morrison government has introduced the National Consumer Credit Protection Amendment (Mortgage Brokers) Bill 2019 – containing a new bests interest duty obligation on mortgage brokers, as recommended by commissioner Kenneth Hayne in the final report of the banking royal commission.
The bill states that brokers “must act in the best interests of consumers when giving credit assistance in relation to credit contracts”, meaning:
The draft bill, which is open for consultation until 4 October, notes that the duty to act in the best interests of the consumer in relation to credit assistance is a “principle-based standard of conduct” and “does not prescribe conduct that will be taken to satisfy the duty in specific circumstances”.
“It is the responsibility of mortgage brokers to ensure that their conduct meets the standard of ‘acting in the best interests of consumers’ in the relevant circumstances,” the bill states.
According to the bill, the content of the duty “ultimately depends on the circumstances in which credit assistance is provided”.
Examples of such content cited in the draft bill include:
In addition to the new best interests obligation, the draft bill requires a mortgage broker to “resolve conflicts of interests in the consumer’s favour”.
The bill states that “if the mortgage broker knows, or reasonably ought to know”, that there is a conflict between the interests of the consumer and the interests of the broker or a related party, the mortgage broker “must give priority to the consumer’s interests”.
As an extension to the best interests duty, the bill builds on remuneration reforms proposed by the Combined Industry Forum, which includes:
The proposed regulations also limit the period over which commissions can be clawed back from aggregators and mortgage brokers to two years, and prohibit the cost of clawbacks being passed on to consumers.
Following the publication of the draft bill, Treasurer Josh Frydenberg said he is confident the reforms would further strengthen the broker proposition by producing better outcomes for borrowers.
“Mortgage brokers play an important role in promoting good consumer outcomes and competition in the home loan market.
“Mortgage brokers have a strong presence in the home loan market, accounting for close to 60 per cent of home loans.
“The implementation of the best interests duty will bring the law in line with what consumers expect of mortgage brokers.”
The new provisions are scheduled for implementation by 1 July 2020.
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Charbel Kadib is the news editor on The Adviser and Mortgage Business.
Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.
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