Credit Advisers, Consumer Credit and Equitable Fiduciary Obligations

DOI10.1177/0067205X18816235
Publication Date01 March 2019
AuthorSimone Degeling,Jessica Hudson
SubjectArticles
FLR816235 64..90 Article
Federal Law Review
2019, Vol. 47(1) 64–90
Credit Advisers, Consumer
ª The Author(s) 2019
Article reuse guidelines:
Credit and Equitable
sagepub.com/journals-permissions
DOI: 10.1177/0067205X18816235
Fiduciary Obligations
journals.sagepub.com/home/flr
Simone Degeling* and Jessica Hudson*
Abstract
Consumers use financial intermediaries such as brokers and other credit advisers to navigate
complex financial markets and to provide guidance on credit products. In 2017 ASIC reported that
‘[b]rokers … are responsible for arranging … half of all home loans in Australia’ (Australian
Securities & Investments Commission, Report 516: Review of Mortgage Broker Remuneration
(2017) 8 [18]). The National Consumer Credit Protection Act 2009 (Cth) (‘Credit Regime’) regulates
the conduct of such advisers including requiring disclosure of fees and some commissions. The
Credit Regime also permits conflicts between the interest of the adviser and the client, provided
that the adviser has in place ‘adequate arrangements to ensure … [that the client is] … not dis-
advantaged by any conflict of interest’ and that the conflict does not breach the adviser’s obligation
to act ‘efficiently, honestly and fairly’. This article demonstrates that equitable fiduciary obligations
also operate to regulate the conduct of the adviser in his or her dealings with the client. Such
conflict and other conduct may breach any equitable fiduciary obligation thus exposing the adviser
to equitable remedies. Equitable fiduciary obligations may thus be an as yet under-exploited avenue
of protection for consumers and a concomitant zone of compliance risk for those subject to the
Credit Regime.
Introduction
The National Consumer Credit Protection Act 2009 (Cth) (‘Credit Regime’) was enacted to
provide enhanced consumer protection in obtaining consumer credit. The specific objectives of
the legislation include ‘[t]o provide a comprehensive . . . consumer credit regime, by addressing
conflicts or gaps in the existing consumer credit regime where there is evidence that consumers are
suffering loss and other detriment . . . ’1 and to introduce a licensing system for market participants
to ensure, amongst other matters, that participants (including credit advisers) act ‘honestly . . . [and
* UNSW Law. We are grateful for the comments of participants at the Statutory Interpretation In Private Law Symposium
and the Inaugural Fiduciary Law Workshop both held at UNSW Law in 2017 and the comments of the anonymous
reviewers. We are indebted to Whittens and McKeough for their support of private law research at UNSW Law and the
excellent research assistance given by Maximus Jones. We are responsible for any remaining errors. The authors can be
contacted at jessica.hudson@unsw.edu.au; simone.degeling@unsw.edu.au.

Degeling and Hudson
65
competently]’.2 The Credit Regime is in part a response to the asymmetries of information3 which
may exist between an adviser and client and the risks of dishonest conduct by a broker, adviser or
other intermediary.4 Conflict between the adviser and the client is permitted, provided the adviser
has in place ‘adequate arrangements to ensure . . . [that the client is] . . . not disadvantaged by any
conflict of interest’5 and the conflict does not breach the adviser’s obligation to act ‘efficiently,
honestly and fairly’.6
This article demonstrates that equitable fiduciary obligations also regulate the conduct of credit
advisers in providing advice about credit. A fiduciary is bound by an obligation of loyalty which
encompasses ‘two overlapping proscriptive “themes”’.7 First, the fiduciary must not act with a
conflict or significant possibility of conflict between their duty and interest; their judgment must
not be swayed by such considerations. Secondly, any gain which the fiduciary obtains or receives
by reason or use of their position, or through knowledge or opportunity resulting from their
position, must be given up to the principal. The fiduciary position must not be exercised for
personal advantage.8 In showing that equitable fiduciary obligations are owed by credit advisers,
we suggest that equitable fiduciary obligations offer protections to the consumer not otherwise
available under the Credit Regime. These protections are distinctive because equitable fiduciary
law scrutinises the entire course of dealing between the parties and thus potentially applies to
conduct which does not formally engage the Credit Regime. In addition, the fiduciary norm’s
settings offer further avenues of protection to the consumer in relation to conflicted transactions,
even in relation to those transactions which are regulated by the Credit Regime.9 Whereas the
Credit Regime tolerates conflict so long as the client ‘is not disadvantaged’10 by the conflict of
interest and the conflict does not infringe the obligation to act ‘efficiently, honestly and fairly’,11
equitable fiduciary law obligates a fiduciary to avoid a conflict12 or a sensible possibility of
conflict.13 Some profits are also permitted under the Credit Regime,14 whereas a fiduciary is
prohibited from profit-taking.15 The Credit Regime itself fails methodically to meet these risks.
This finding has significance for credit advisers who risk equitable liability in meeting a statutory
standard which permits conflict.
This article thus argues for equity’s essential role in regulating advisers in providing advice
about credit. In advancing these arguments, we examine the Credit Regime. The ‘National Con-
sumer Credit Protection Act 2009 (Cth)’ section outlines the Credit Regime and postulates a
hypothetical course of dealing inspired by ASIC Regulatory Guide 203: Do I need a credit licence?
(‘ASIC RG 203’).16 The ‘Existence of a Fiduciary Relationship’ and ‘Scope of Fiduciary Obliga-
tions and Breach’ sections apply equitable fiduciary principles to the course of dealing mandated
by the Credit Regime. As our discussion demonstrates, compliance with the Credit Regime will not
evidence conduct capable of satisfying any equitable fiduciary obligations binding a credit adviser.
For the credit adviser, the challenge is therefore not only to discharge the Credit Regime but also to
meet any equitable fiduciary obligations arising on that course of dealing. For the consumer,
equitable fiduciary obligations offer an additional source of protection and redress against con-
flicted transactions and the illusory choices presented by a menu of options which may be
embedded with conflict.
National Consumer Credit Protection Act 2009 (Cth)
Advice given in the context of consumer credit is subject to the National Consumer Credit
Protection Act 2009 (Cth). The section below outlines the mandated disclosures and licence
obligations arising under this regime. The discussion also outlines a paradigm course of dealing

66
Federal Law Review 47(1)
between the credit adviser and client, where that course of dealing is mandated by the Credit
Regime. This course of dealing is that to which equitable fiduciary obligations may respond. We
discuss the equitable fiduciary obligations which may be constituted by this conduct in the ‘Exis-
tence of a Fiduciary Relationship’ section below.
Statutory Requirements
In understanding the statutory liability of a credit adviser under the Credit Regime, the relevant
statutory concept is provision of a ‘credit service’,17 which in broad terms turns on whether that
provider suggests or assists the client to obtain credit from a particular credit supplier. The Credit
Regime may thus apply to financial advisers, who also provide other financial services to clients.
The regime may also, for example, apply to credit originators or mortgage brokers. The function of
an adviser, credit originator or broker (generically described here as the credit adviser) includes
procuring for the credit provider applications by potential clients for loans. The credit adviser may
or may not be affiliated with a financial institution and will typically offer a suite of potential
services to a client including identifying potential lenders, summarising and explaining their
various credit products, mediating between the client and various potential lenders and assisting
with credit applications to particular lenders.
As soon as practicable after it becomes apparent that a credit adviser will be making a recommen-
dation or otherwise assisting the client in relation to a credit contract, the credit adviser must provide to
the client a ‘credit guide’.18 The credit guide will relevantly disclose any fees or charges payable by the
client to the credit adviser in relation to the credit assistance19 and any related commissions.20 In
addition, information must be disclosed about the credit providers with whom the credit adviser
conducts business. Where there are six or fewer providers, all credit providers must be listed. However,
where the credit adviser conducts business with more than six, only the six credit providers with whom
the credit adviser reasonably believes it conducts the most business need be identified.21
A credit adviser must not engage in a credit activity (which includes a credit service)22 without
an Australian Credit Licence (ACL).23 The obligations of an ACL holder include a general
obligation to (a) ‘ensure that the credit activities authorised by the licence are engaged in effi-
ciently, honestly and fairly’24 and (b) have in place arrangements to ‘ensure that clients . . . are not
disadvantaged by any conflict of interest that may arise wholly or partly in relation to credit
...

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