The responsible lending obligation requires Australian mortgage brokers to make reasonable enquiries into a borrower’s financial situation and assess whether a proposed loan is ‘not unsuitable’ before recommending it. The obligation is set out in the National Consumer Credit Protection Act 2009 (NCCP Act).
Three core obligations:
1. Make reasonable enquiries. The broker must ask the borrower about their financial situation, objectives, and requirements. This includes income, employment, expenses, existing debts, assets, and any anticipated changes to circumstances.
2. Verify the information. The broker must take reasonable steps to verify the information provided — typically by reviewing payslips, bank statements, tax returns, and other financial documents.
3. Assess suitability. The broker must assess whether the credit contract is ‘not unsuitable’ for the borrower — meaning the borrower can afford the repayments without substantial hardship and the product meets their objectives.
Best interest duty. From 2021, brokers are also subject to a best interest duty, which goes further than the not-unsuitable test. Brokers must now actively prioritise the borrower’s interests, compare a range of products, and document their reasoning.
Documentation. Brokers must retain records of their enquiries, verifications, and assessments. These are subject to review by ASIC and by the broker’s aggregator compliance team.
Consequences of breach. Violations of responsible lending obligations can result in ASIC enforcement action, licence suspension, and financial penalties.
