What do finance brokers do?
Consumers may believe a finance broker is uniquely positioned to obtain a better deal than the Under the Australian Consumer Law, a person who buys goods or services for less than $40 000 or for personal or home use. could obtain personally, particularly in the context of home loans. However, consumers must be mindful that many brokers A document that sets out what a person wants to happen to their money and other property after they die. only deal with a panel of lenders who have agreed to pay the broker a commission. Brokers will often only arrange loans with a limited number of lenders, and will not consider all the loans available. There is a risk that a broker acting under these arrangements will arrange a loan that is most advantageous for the broker, rather than a loan that is in the best interests of the consumer. Some brokers also (1) A statement giving the details of a crime an accused person is claimed to have committed. (2) A personal property security. (3) A judge’s directions to a jury at the end of a case. large up-front fees to arrange a loan. Consumers need to factor these risks and The amount charged by a lawyer for legal work. Lawyers can only charge the amount agreed with the client in a costs agreement or the amount stated by a court in its rules. The party who loses a case usually has to pay all their own costs plus most of the costs reasonably incurred by the other side. See also indemnity costs. into their decisions and shop around for the best deal.
The NCCP A written law made by parliament. Also called an ‘Act of parliament’, ‘statute’ or legislation. includes finance broking within its definition of ‘A debt that does not have to be paid until some future time. Being allowed to pay later, in the future, for something you are getting now. assistance’ (s 8 NCCP Act). Like all persons providing credit assistance, finance brokers are required to hold an Australian Credit Licence, a condition of which is that the licensee must be a member of an ASIC-approved dispute resolution scheme (see ‘Solving disputes with creditors’ in Chapter 5.10: Unauthorised transactions and ePayments Code).
Unfair and dishonest conduct
Under section 180A of the NCCP Act, courts have the power to make orders remedying unfair or dishonest conduct by a credit Formal delivery of legal documents to a person to tell them there are court proceedings against them which they must defend, or to make sure a witness in a case knows when they have to go to court to give evidence. provider (including a finance broker) where the assistance was provided on or after 1 March 2013. Subsections 180A(3) and (4) set out a broad list of relevant considerations that the An independent body that hears legal claims brought by parties and decides between them. Serious cases are heard by a judge and jury, or just a judge. Less-serious cases are heard by a magistrate. may take into account in determining whether to make such an order, including whether or not the applicant is a member of a disadvantaged class of people (s 180A(4)(b)).
Otherwise, the ASIC Act sets out general prohibitions (similar to those in the Australian Consumer Law) against unfair practices such as false representations, Something done by a manufacturer or seller that is unfair, dishonest or likely to mislead a consumer when buying goods or services. (ss 12DA–DC, 12DF) and Behaviour that takes unfair advantage of a vulnerable person in a contract or other transaction. The vulnerability can be due to factors such as poor education, disability, language difficulties or being affected by alcohol. (ss 12CA–12CC) in relation to the provision of financial services. The Corporations Act 2001 (Cth) also contains relevant prohibitions in sections 1041E–H, including An order made by the Supreme Court of Victoria or the High Court of Australia prohibiting a body from acting outside its authority. See also jurisdiction; prerogative writ; ultra vires. against ‘dishonest conduct’ in the provision of financial goods and services (s 1041G). Under section 1041I, a person who suffers loss as a result of contraventions of sections 1041E–H has a cause of action under that provision to recover that loss from the contravener.
Until 2 October 2011, licensees were exempted from providing a credit guide, quote and credit proposal, provided certain conditions were met (reg 28L NCCP Regulations).
Since 2 October 2011, before providing credit assistance, finance brokers have to give consumers a credit guide (s 113 NCCP Act).
This guide must disclose:
- the broker’s name and contact details;
- the broker’s Australian Credit Licence number;
- any fees, charges and commissions payable and the manner of their calculation;
- the names of the six credit providers with whom the broker conducts the most business;
- a broker’s obligation to give a consumer a copy of a preliminary assessment of whether or not the credit sought is unsuitable for the consumer;
- a broker’s obligation not to suggest entering, or assist a consumer to enter, or increase the credit limit under, an unsuitable A contract relating to the giving of credit.;
- the broker’s internal dispute resolution procedure;
- the details of the dispute resolution scheme of which the broker is a member.
A broker also has to provide a customer with a detailed, personalised quote before recommending entry into any loan, disclosing the maximum amount of fees payable, a breakdown of those fees and whether or not the fees are payable if a credit An agreement that the law will enforce. is not ultimately entered into (s 114 NCCP Act).
Under section 121 of the NCCP Act, a finance broker must provide a credit proposal to a consumer when they suggest that:
- the consumer apply, or they assist the consumer to apply, for a particular credit contract;
- the consumer apply, or they assist the consumer to apply, for an increase to the credit limit of a particular credit contract; or
- the consumer remain in a particular credit contract.
The credit proposal must disclose:
- all fees and charges paid to the broker and the method of their calculation;
- a reasonable estimate of all commissions paid to the broker in relation to the credit contract;
- a reasonable estimate of all fees likely to be paid by the consumer to the credit provider; and
- the amount of credit available to the consumer after such amounts are paid out of the loan.
Brokers and responsible lending obligations
Since 1 July 2010, finance brokers, and others providing credit assistance, have been obliged to make reasonable inquiries into a consumer’s financial situation, requirements and objectives before suggesting that a consumer enters into a particular loan or increases a credit limit on a particular loan. Brokers bear the corresponding duty to make a preliminary assessment using this information in relation to the suitability of any loan before recommending it, and are prohibited from suggesting that a consumer enter into a loan, or increase a credit limit on a particular loan, if the contract is unsuitable for the consumer (ss 115–120, 123 NCCP Act).
The criteria for assessing suitability of a loan are generally the same as those discussed above regarding the responsible lending obligations of credit providers (see ‘Responsible lending obligations: Suitability’ in Chapter 5.7: Understanding credit and finance).
A finance broker’s failure to To find someone ‘not guilty’ on a charge in a criminal case. its obligations under the NCCP Act gives an affected consumer a right to apply to a court or external dispute resolution scheme for a An order requiring that someone found guilty of an offence pay for damage to property caused by the offence. The payment is made to the affected person or business. under section 178, or another order compensating for loss or damage under section 179.
Best interest duty
From 1 January 2021, in response to recommendations of the Financial Services Royal Commission, A restriction attached to ownership of property to secure the repayment of money borrowed. The mortgage stops the owner of the property selling it until they have paid off the debt. brokers have a duty to act in the best interests of the consumer and must give priority to the consumer’s interests when providing credit assistance (ss 158LA, LB, LE, LF NCCP Act). ASIC has released regulatory guidance about how it expects brokers to comply with these obligations in Regulatory Guide 273.
Former Victorian law
Part 4A of the Consumer Credit (Victoria) Act 1995 (Vic) (‘CCV Act’) regulated the activities of finance brokers after 1 July 1999, but only applied when a fee was charged directly to the consumer by a broker. Part 4A continued to apply to broking activities in Victoria until 1 January 2011. Among other things, the CCV Act limited the circumstances in which a broker was entitled to charge fees.
In the past some brokers included a clause in their documents of appointment that gave them the right to place a (1) A warning or notice – for example, to a buyer to thoroughly check a product before buying it (see caveat emptor). (2) A notice filed with Land Victoria warning anyone who searches the land title that someone claims ownership or some other right in the land. over the consumer’s property, which prevented the consumer from disposing of that property until the broker had been paid. Since 1 January 2011, this practice (including the threat to lodge a caveat) has been prohibited under section 114(6) of the NCCP Act.