Mortgage brokers will be subject to a ban on conflicted remuneration from 1 January 2021. If you are a mortgage broker, mortgage intermediary or credit provider, you should consider your remuneration structures to determine whether they comply with the ban on conflicted remuneration. The National Consumer Credit Protection Act 2009 (“NCCP Act”) includes anti-avoidance provisions which mean that any scheme devised purely to avoid the ban on conflicted remuneration will be subject to the civil penalties contained in the NCCP Act.
What is Conflicted Remuneration?
Conflicted remuneration refers to any monetary or non-monetary benefit that is given to a licensee or representative of a licensee which could reasonably be expected to influence the credit services provided to consumers (section 158N of the NCCP Act).
Who will the Regulations affect?
The NCCP Act includes new definitions of mortgage broker and mortgage intermediary and bans these entities, and their credit representatives, from accepting conflicted remuneration. The ban applies to those brokers and intermediaries who carry on the business of providing credit assistance or intermediary services in relation to credit contracts secured by mortgages over residential property.
What is not Conflicted Remuneration?
The National Consumer Credit Protection Regulations 2010 (“Regulations”) provide guidance on which benefits will not be considered conflicted remuneration.
- A monetary benefit which is given by the consumer under a credit contract;
- A monetary benefit which is:
- not a volume-based benefit;
- not a campaign-based benefit;
- if a drawdown cap applies, the benefit is not tied to the amount of credit or percentage of the maximum drawdown (Reg 28VB(3)); and
- the clawback requirements are satisfied (where relevant);
- A non-monetary benefit that:
- is valued at less than $300 for each licensee or representative;
- has a genuine education or training purpose;
- is the provision of IT support or software; or
- is given by the consumer in relation to a credit service.
Regulations 28VC and 28VD provide further guidance on the benefits to which the drawdown cap applies and how to calculate the maximum drawdown net of offset for a credit contact. The drawdown cap applies within one year of the beginning of the credit contract and will not apply to any benefits given after this period.
Clawback arrangements require mortgage brokers to repay all or part of the benefit received from the consumer if the consumer is in default under the credit contract (Regulation 28VG of the Regulations). The Regulations provide that the clawback requirements must not apply for more than two years after:
- the first day on which the credit contract is provided to a consumer for a new credit contract; or
- the first day on which the credit contract is provided to a consumer for a refinanced credit contract.
The obligation to repay the benefit must not require repayment of an amount greater than the benefit given to the licensee or representative. Further, the consumer must not be subject to repay an amount that was to be repaid by the licensee or representative.
In September 2020, the restrictions outlined in the Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers) (Mortgage Brokers) Regulations 2020 were inserted into the NCCP Act and Regulations, enacting the ban on conflicted remuneration for certain Australian Credit Licensees. The Regulations prohibit mortgage brokers, credit intermediaries and credit representatives of those entities from accepting conflicted remuneration.
A temporary exemption was provided in the ASIC Credit (Deferral of Mortgage Broker Obligations) Instrument 2020/487 to allow for the classes of persons affected by the Regulations to be exempt from these provisions when accepting benefits in relation to credit services provided before 1 January 2021, regardless of whether the benefit was given before, on or after 1 January 2021.
If you have any questions about how the ban on conflicted remuneration for mortgage brokers and mortgage intermediaries will affect you, please contact us.