Responsible lending requires a broker to enquire into the client’s needs and finances, verify the financial information and assess whether proposed credit is unsuitable. Complete those steps before recommending a particular home loan or helping the client apply. A lender’s approval and a passing serviceability result do not replace the broker’s assessment.
Establish the Broker’s Assessment Duty
Start by identifying the applicant, loan purpose and credit activity. Establish whether the proposed assistance concerns credit covered by the National Consumer Credit Protection Act 2009 (NCCP Act). Personal housing and residential investment lending can be covered. A property offered as security does not settle the question of coverage by itself.
Record which licensee is responsible for the assistance and whether you are its credit representative. Suggesting a particular contract, helping with an application and suggesting that a client remain in a contract can involve credit assistance. If the applicant, purpose or claimed exemption is unclear, resolve it through the licensee’s qualified assessment process before continuing.
The broker makes a preliminary assessment. The credit provider makes its own final assessment. ASIC’s responsible lending overview describes both roles and their enquiry and verification obligations. These duties continue to apply to brokers and lenders on covered credit activities. Deposit-takers also remain subject to the duties.
The Act creates the obligations. Regulatory Guide 209, Credit licensing: Responsible lending conduct, explains the Australian Securities and Investments Commission’s (ASIC’s) interpretation and practical guidance. Keep the separate best interests duty in the recommendation process as well.
Enquire Into Requirements and Finances
Ask questions in an order that establishes what the client wants before assessing how they will pay for it. The following prompts help build the enquiry record.
- Establish the purpose and amount. Record what the borrowing will fund, the contribution available and any debts being refinanced.
- Identify the client’s requirements and objectives. Discuss the intended term, repayment preference and features they need, such as an offset or access to extra repayments.
- Describe income and its reliability. Separate base pay from overtime, bonuses and other variable income. Ask about employment changes and the sustainability of self-employed earnings.
- Capture household expenditure and commitments. Ask about dependants, recurring expenses, credit limits, loan repayments and obligations absent from the application form.
- Identify foreseeable changes. Discuss known leave, retirement, an expiring contract, rising commitments or an expected change in rental income.
- Confirm the account with the client. Record explanations for inconsistencies and identify the evidence needed before assessment.
Reasonable enquiries respond to the circumstances of the file. A stable salary with matching records needs a different investigation from variable earnings or conflicting bank activity. If the client relies on reducing expenses, ask which spending will change and why that reduction is realistic. Record the answer instead of assuming a calculator surplus makes the reduction achievable.
Verify the Financial Information
For each financial claim, record the source examined and what it establishes. Keep an explicit distinction between a verified amount, a client estimate and a forecast. The following evidence map illustrates the checks to adapt to the file.
| Financial claim | Possible supporting evidence | Verification result to record |
|---|---|---|
| Employment income | Payslips, account credits and employment confirmation where needed | Matching applicant and employer, pay frequency, net income and explanation of variable components |
| Self-employed income | Tax returns, financial statements and business account activity | Period covered, earnings available to the applicant and reasons for differences between records |
| Rental income | Lease, managing-agent statements and account credits | Rent received, vacancy assumptions, property costs and any change expected |
| Living expenses | Transaction records, bills and the client’s explanations | Recurring expenditure, irregular costs and any credible proposed reductions |
| Liabilities | Loan and credit-card statements, credit information and repayment records | Outstanding amounts, limits, repayments and debts missing from the application |
| Savings or other resources | Account or asset records and evidence of access | Amount available, ownership, restrictions and whether funds already have another purpose |
An automated income verification result still needs interpretation. Check the applicant and account coverage, the income period and the treatment of transfers or irregular payments. Investigate an unexplained mismatch between the result and the documents before relying on the figure.
For example, a regular account debit labelled as a finance payment needs an explanation if the client declares no other debt. Ask what it pays for, obtain supporting records and update the commitments when appropriate. An application form alone cannot resolve that inconsistency.
RG 209’s guidance on verification and benchmarks explains how benchmarks can help test expense information. A lender benchmark does not establish this client’s actual expenditure. Investigate differences and expenses outside the benchmark’s coverage instead of substituting its figure for the enquiry record.
Make the Preliminary Assessment
Assess repayment ability and whether the contract meets the client’s requirements and objectives. Under sections 116 to 119 of the NCCP Act, likely inability to meet financial obligations, substantial hardship or a mismatch with requirements or objectives requires an unsuitable assessment. Consider any additional prescribed circumstances that apply.
RG 209 explains how to examine repayment capacity and substantial hardship in the client’s circumstances. Document the repayment assumptions and foreseeable changes you consider. Equity in a property does not by itself show that the client can make repayments.
Hypothetical File: A Passing Calculation With an Unresolved Shortfall
A couple seeks an owner-occupied loan with an offset and principal-and-interest repayments. Payslips and account credits establish combined monthly net income of $9,200. Transaction records and client explanations establish $3,700 of living expenses. Existing debt repayments are $900, and the proposed loan payment is assumed to be $3,100.
The initial monthly remainder is $1,500: $9,200 less $3,700 less $900 less $3,100. These are hypothetical cash-flow figures, not a lender offer or a prescribed assessment buffer.
During enquiries, one applicant discloses planned unpaid leave lasting six months. Verified income during leave falls to $6,600. With the same outgoings, the file now shows a $1,100 monthly shortfall, or $6,600 over that period. Their $8,000 savings are committed to purchase costs, so those funds cannot also cover the shortfall.
The broker must stop the recommendation on this evidence and clarify how repayments will be met during leave. An assumption that overtime will resume does not supply the missing funds. If further evidence establishes accessible reserves or a different affordable structure, assess that revised proposal and record the reasoning. If the shortfall remains, the proposed contract must be assessed as unsuitable on these assumed facts.
The offset meets one stated requirement, but it does not resolve repayment ability. A lender’s willingness to approve the application cannot resolve the broker’s contradictory evidence either.
Document and Provide the Assessment
Write the assessment so another authorised reviewer can reconstruct the decision. Identify the proposed contract and the period assessed. Record the client’s requirements, financial amounts and evidence references, together with assumptions and explanations for discrepancies. State how repayment ability and fit with the client’s objectives support the conclusion.
Keep unresolved issues visible in the working record. Assign the follow-up needed to resolve them before providing assistance. Broker policy and procedure documents can allocate review responsibilities, while the assessment itself carries the file-specific reasoning.
Section 115 generally requires the broker’s assessment, enquiries and verification within 90 days before credit assistance. Specify the assessment period and revisit information when circumstances change. Regulation 28J’s longer period for certain home-loan credit providers does not extend the broker’s period.
Under section 120, where a credit assistance quote is issued, the client can request a free written preliminary assessment within seven years of that quote. For a request within two years, provide it before the end of seven business days after receipt. For a later eligible request, the period is 21 business days. The requirement does not apply if credit assistance is not provided.
ASIC’s disclosure guidance explains these periods and exemptions. If no quote was required or an exemption is claimed, send the request through the licensee’s qualified disclosure process without inventing a starting date. Log receipt immediately so the correct response period can be applied.
RG 209 explains the licence condition supporting retention of the material behind an assessment. Keep that material retrievable under the licensee’s applicable retention requirements. The client’s seven-year request window is not permission to discard other required records automatically.
Provide the credit proposal disclosure document when providing credit assistance, with its contents covered in the credit proposal guide.
Keep the Assessment and Loan Record Connected
Connect the assessment version and disclosure record to the application identifier, then add the settled loan identifier when available. Preserve changes in income, commitments or requested loan terms with the resulting reassessment. Keep financial evidence in the restricted assessment file and use identifiers to connect records without copying confidential documents into commission reports.
Those identifiers also let you find the original assessment when a client returns for a loan review. Reconcile the settled loan separately against the aggregator’s recipient-created tax invoice statements and commission records. Track My Trail’s Commission Verification matches upfront payments to the trail expected within two months, helping you investigate commission gaps against the loan record.
Trail movements and commission payments cannot determine whether the original credit assistance met responsible lending duties. That conclusion depends on the enquiries, verification and assessment at the time of assistance. Before progressing the file, confirm that each amount traces to evidence, contradictions are resolved and the written reasoning addresses repayment ability and the client’s objectives.
