What is ethics in lending?

Lending runs on trust. Borrowers hand over sensitive financial information, rely on professional recommendations and commit to long-term obligations on the strength of advice from brokers and lenders. When that trust is broken through mis-selling, hidden fees, conflicted advice or predatory lending, the damage lands on individual borrowers, on the industry's reputation and on the regulatory environment everyone operates in.

The Banking Royal Commission (2017 to 2019) exposed widespread failures across Australian financial services: fees charged for no service, loans approved without proper assessment, and conflicts of interest driving product recommendations. The reforms that followed, including the best interests duty for mortgage brokers introduced in 2021, turned ethical conduct into a legal obligation in areas that were previously left to industry standards.

Responsible lending under the NCCP Act requires lenders and brokers to make reasonable inquiries about a borrower's situation, verify it and assess that the contract is not unsuitable: in plain terms, do not put people into loans they cannot afford. The best interests duty goes further for mortgage brokers, who must act in the borrower's best interests rather than simply avoid an unsuitable product.

Transparency means disclosing all fees, commissions, conflicts and material terms in clear language; the credit guide a broker must provide is one mechanism, but ethical practice makes sure borrowers genuinely understand what they are signing. Fair treatment means not exploiting vulnerable borrowers and applying hardship provisions genuinely. Managing conflicts means identifying and disclosing commission structures, volume bonuses and ownership interests in referral partners.

Upfront commissions are usually a percentage of the loan amount, which creates an incentive to recommend larger loans; the best interests duty addresses this for mortgage brokers, but the tension remains a practical challenge. Add-on products such as consumer credit insurance and extended warranties are sometimes sold at the point of lending without proper explanation of their value or cost, and ASIC has taken enforcement action against lenders and intermediaries over them.

Predatory lending targets borrowers who clearly cannot service the debt, including some payday loan practices. Document fraud, such as falsified income or employment details, is both unethical and criminal. And how a lender responds to a borrower in hardship, with early engagement and workable arrangements rather than aggressive collection, reveals its real standards.

The MFAA Code of Practice and the FBAA Code of Conduct set standards for member brokers, the AFIA Code of Practice covers consumer and commercial finance including leasing and fleet, and the Banking Code of Practice sets standards for banks dealing with individuals and small businesses. These codes are voluntary, but membership conditions make them binding, and breaches can lead to suspension or expulsion.

In commercial finance, where many products are unregulated under the NCCP Act, ethical conduct matters even more because statutory protections are limited. Responsible commercial lenders and brokers apply fair dealing, transparent pricing and appropriate lending voluntarily, because it builds trust and sustains long-term relationships.