Treasury has released for consultation an exposure draft of the National Consumer Credit Protection Amendment (Mortgage Brokers) Bill which will amend the National Credit Act to require mortgage brokers to act in the best interests of consumers when providing credit assistance.
The Bill also deals with conflicted remuneration by providing that:
- Where there is a conflict of interest, mortgage brokers must give priority to consumers in providing credit assistance in relation to credit contracts.
- Mortgage brokers and mortgage intermediaries must not accept conflicted remuneration.
- Employers, credit providers and mortgage intermediaries must not give conflicted remuneration to mortgage brokers or mortgage intermediaries.
Conflicted remuneration means any benefit, whether monetary or non-monetary, that is:
• given to a licensee, or a representative of a licensee, who provides credit assistance to consumers 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 (including, therefore, the choice of credit contract or choice of credit provider); or
• given to a licensee, or a representative of a licensee, who acts as an intermediary and because of the nature of the benefit of the circumstances in which it is given, could be reasonably expected to influence whether or how the licensee or representative acts as an intermediary.
The Regulations will prescribe that a monetary benefit is not conflicted remuneration if the benefit is given by a consumer in relation to a credit service provided to the consumer by the licensee or representative.
A benefit is also not conflicted remuneration if:
(a) the benefit relates to a credit service provided by the licensee or representative to a consumer in relation to a credit contract; and
(b) the benefit is not a volume-based benefit; and
(c) the benefit is not a campaign-based benefit; and
(d) for a credit contract that relates to:
(i) the provision of credit wholly or predominantly for the purpose of purchasing residential property; or
(ii) the provision of credit wholly or predominantly for the purpose of refinancing credit that was provided wholly or predominantly for the purpose of purchasing residential property;
the benefit is one of the following:
(a) an amount given on the basis of the credit service provided to the consumer in relation to the credit contract, without reference to a particular amount of credit provided to, or drawn down by, the consumer under the credit contract;
(b) a benefit that is calculated as a percentage of an amount that is no more than the drawdown amount for the credit contract;
(c) a benefit that is a combination of either or both of paragraphs (a) and (b).; and
(e) the clawback requirements are satisfied in relation to the benefit (if applicable).
The draft regulations 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.
New penalties will include:
- Failure of a licensee to act in the best interests of the consumer: 5,000 penalty units (currently $1.05 million);
- Failure of a licensee to give priority to the consumer’s interests: 5,000 penalty units;
- Licensee accepting conflicted remuneration: 5,000 penalty units;
- Credit representative accepting conflicted remuneration: 5,000 penalty units.
The obligations relating to the best interests obligations will apply in relation to the provision of credit assistance to a consumer after 1 July 2020, whether or not the assistance was sought, or commenced being provided before that day.
The obligations relating to the ban on conflicted remuneration will apply in relation to conflicted remuneration given after 1 July 2020, subject to regulations being made prescribing the circumstances in which the ban applies.
The ban on conflicted remuneration will apply to benefits given after 1 July 2020, regardless of whether any arrangement under which those benefits are given was in place prior to 1 July 2020.