The Best Interests Duty: what it obliges a mortgage broker to do

Since 1 January 2021, Australian mortgage brokers have been subject to a specific legal obligation known as the Best Interests Duty, introduced under Part 3-5A of the National Consumer Credit Protection Act 2009 by reforms responding to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. In plain terms, the duty requires a broker to act in the best interests of the consumer when providing credit assistance, and to prioritise the consumer's interests where there is a conflict between what suits the consumer and what suits the broker, an associate of the broker, or the broker's business.

This is a separate obligation from the older, still-existing responsible lending requirements that apply to credit licensees more generally. Responsible lending is about not putting a borrower into a loan that is unsuitable for them; the Best Interests Duty goes further, requiring active prioritisation of the consumer's interests throughout the process — from the questions asked at the outset, through to which loan or loans are actually presented. ASIC's Regulatory Guide 273 sets out how the regulator assesses compliance, describing it as principles-based rather than a fixed checklist: it does not prescribe one single correct process every broker must follow, but it sets out the kind of conduct ASIC expects to see reflected in how a broker actually operates.

A central feature of the duty is what is often called the conflict priority rule: where a broker knows, or reasonably ought to know, of a conflict between the consumer's interests and the interests of the broker, an associate, or a related party, the consumer's interests must be given priority. Commission structures are an obvious potential source of conflict — a loan that pays a broker more is not automatically the wrong loan for a given borrower, but the duty exists so that commission cannot steer a recommendation ahead of the borrower's own circumstances.

Importantly, the law includes anti-avoidance protection: a broker cannot contract out of the duty through a disclosure, a signed acknowledgement, or any other arrangement with the consumer. A borrower cannot validly "consent" to a broker deprioritising their interests, and a disclaimer cannot be used to sidestep the obligation — a deliberate design feature, intended to stop the duty being reduced to fine print few people actually read.

It is worth being precise about what the duty does not automatically guarantee. It does not mean a broker has searched literally every lender in the Australian market — brokers typically work from a panel of lender relationships rather than the entire market. It does not guarantee the lowest interest rate, the fastest approval, or any particular outcome, and compliance is assessed on the process followed, not simply the ultimate outcome. It also operates alongside, not instead of, general conduct obligations such as maintaining a current Australian Credit Licence or credit representative authorisation, discussed in our article on checking a broker's credentials.

This article is general information, not financial or credit advice, and describes a legal obligation rather than guidance on any individual borrowing decision. If you have concerns about whether a broker has met their obligations to you, ASIC's own guidance and the free external dispute resolution scheme AFCA, covered in a separate article, are the relevant starting points rather than anything in this article. Our directory lists Australian mortgage and finance brokers by area.

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