A Broker Moved a Client’s Home Loan Arrears Onto a Six-Month Business Loan. AFCA Found the Business Purpose Declaration Ineffective

The headline number, and the one that matters

AFCA received 119,949 complaints in the year to 30 June 2026, which it described as the highest in its history. Australian Broker put the year-on-year rise at 19 per cent. Banking and finance made up more than half the caseload at 66,971 complaints, up 23 per cent from 54,581, according to figures reported by The Adviser.

Within banking and finance, the product table reads: personal transaction accounts 17,011, credit cards 12,066, personal loans 7,200, home loans 7,014 and online accounts 3,334. Financial difficulty complaints rose 17 per cent to 5,566.

None of that is a broker story in itself. AFCA’s review does not publish a separate complaint count for mortgage broking, and the aggregate figures are overwhelmingly about lenders and insurers, not intermediaries. Reading the review for the totals alone would leave a broker with nothing to do on Monday.

The case studies are different. They are the closest thing the channel gets to a published view of how AFCA reasons about a broker’s conduct on a specific file — and this year’s review includes one that goes directly to a structure some brokers are being asked about more often as arrears build.

What AFCA actually found

The facts, as summarised in AFCA’s review and reported by The Adviser, are these. A borrower had fallen behind on her home loan repayments. She had already been declined by another lender. Her mortgage broker suggested a six-month business loan, drawn using her ABN, to clear the arrears. She signed a business purpose declaration. The broker arranged the funding through a related-party lender, and the proceeds paid down the arrears on her home loan.

When the six-month term ended, she needed to refinance. That brought significant additional fees, and she was told she would need to set up a new company to refinance with the same lender. She complained — about the broker.

AFCA found the business purpose declaration ineffective, because the broker knew the borrowing was substantively personal. Despite the business structure on the paperwork, the loan was regulated by consumer credit legislation, and on AFCA’s view it should not have been provided as business-purpose finance.

Two things are worth stating plainly about what this case study is and isn’t. Neither the broker nor the lender is named, and AFCA did not publish the remedy. Nor is this a finding of dishonesty: AFCA’s conclusion was about the regulatory character of the loan and the conduct of the broker who arranged it, not a finding of fraud, and nothing in the published summary suggests otherwise.

Why the declaration failed

The mechanism here is the business purpose declaration under the National Credit Code, which is Schedule 1 to the National Consumer Credit Protection Act 2009. It is worth being precise about what the Code does and does not do, because the declaration is widely misunderstood as a switch that turns regulation off.

Section 5 of the Code sets out when the Code applies to a credit contract. The NSW Judicial Commission’s bench book on proceedings under the NCCP Act describes those conditions as credit provided for a charge to a natural person (or strata corporation), to be used wholly or predominantly for personal, domestic or household purposes or in relation to investment in residential property, by a credit provider carrying on business in Australia. Where a loan has mixed purposes, practitioner guidance describes the predominant purpose as the one for which more than half of the credit is intended to be used.

Section 13 is the declaration provision. Justice Connect’s Homeless Law practice manual, written for lawyers advising consumers, describes a business purpose declaration as creating a presumption that the credit is not regulated by the Code — while noting that declarations do not have conclusive evidentiary value. On that guidance, the declaration is ineffective where the lender would have known, or had reason to believe, that the loan was for personal, domestic or household purposes had reasonable inquiries been made. The manual also notes the declaration must be in the prescribed form, that the onus is on the creditor to establish the Code does not apply, and that it is an offence to procure a false declaration.

Put that structure next to the case study and the logic is straightforward. The question was never whether the client signed something. It was what the broker knew when the structure was proposed. The broker knew the money was going to clear arrears on an owner-occupied home loan. That knowledge is what emptied the declaration of effect.

The second finding brokers are missing

The regulatory characterisation is the part that has drawn attention. The second element in the summary matters just as much commercially: AFCA also assessed the broker’s conduct against the relevant industry code, because the broker was a member of an industry association.

That is a reminder that association membership is not purely a marketing asset. It imports a standard that a dispute resolution body can and will measure a broker against, in addition to whatever the credit legislation requires and whatever the licensee’s own policies say. A broker on this file faced three overlapping layers at once: the question of whether the loan was regulated credit, the question of whether the recommendation served the client’s interests, and the question of whether the conduct met the code they had signed up to.

Brokers reading this alongside ASIC’s recent work on best interests duty and complaints — Report 840, published 13 October 2026 — will notice the same theme from a different direction. The recorded reason for a recommendation, and the file note that captures it, is doing more work than it used to.

Why this file is about to be more common

The reason this case study deserves attention now, rather than as a curiosity, is that the conditions that produce it are intensifying.

Financial difficulty complaints rose 17 per cent to 5,566 in 2025–26. Australian Broker reported that unanswered hardship requests were the single most common financial difficulty issue, at 3,076 complaints — a figure we have seen in that outlet’s reporting of the review and attribute accordingly. Home loan complaints reached 7,014; Australian Broker put the prior-year figure at 5,818, an increase of roughly 21 per cent. AFCA’s chief ombudsman and chief executive David Locke said complaints were already rising again in the new financial year.

Set that against what brokers are seeing in their own books. Clients in arrears who cannot refinance on standard terms are the clients most likely to ask whether there is another way. When a lender has already said no, and a hardship request has gone unanswered, the client arrives at the broker’s desk looking for a structure rather than a product. That is precisely the moment the case study describes.

The commercial pressure runs the same way. A six-month facility that clears arrears looks, in the moment, like the broker solving an unsolvable problem. The client is grateful. The arrears disappear. The exposure only becomes visible at the end of the term — which, in this case, is exactly when the complaint was made.

Five questions before the structure conversation

This is not an argument against writing business finance. It is an argument for knowing which file you are on before you propose how to fund it. Five questions, asked and recorded before a business-purpose structure goes anywhere near a client in arrears:

1. Where is the money actually going? Not the stated purpose on the application — the destination. If more than half of it is retiring or servicing regulated consumer debt, write that down and treat the file accordingly until your licensee tells you otherwise.
2. Who proposed the structure? A client who arrives with an established business and a genuine commercial need is a different file from one where the broker suggested the ABN. The case study turned on what the broker knew, and the broker proposed it.
3. What did I know, and what does the file show I knew? If you understood the funds were clearing a home loan arrears balance, a declaration signed afterwards does not change that. Your file note should reflect the conversation you actually had.
4. Is there a related-party or referral interest anywhere in this? Funding through a related-party lender was part of the published summary. Where an interest exists, the standard applied to the recommendation gets higher, not lower.
5. What happens at the end of the term? Model the exit before you recommend the entry. If refinancing at expiry depends on conditions outside the client’s control — new fees, a new entity, a lender’s continued appetite — that is a risk to disclose in writing now, not to discover in month six.

What this means for diversification

Plenty of residential brokers have spent the last two years adding commercial and asset finance to their offering, and the volume case for that has not changed. What this case study adds is a boundary condition worth building into the strategy early.

Diversification is usually framed as a product capability question: new lenders, new accreditations, new document sets. The AFCA summary suggests it is also a characterisation question. The same client can present a commercial opportunity and a consumer credit file in the same conversation, and the thing that decides which one it is may be the purpose of the money rather than the entity on the application.

For a growing brokerage, that has a practical consequence. The broker who writes the occasional business-purpose loan without a settled process for evidencing purpose carries more risk per file than the broker who writes them routinely with one. If business lending is going to be a real part of the book, the purpose-evidence process is part of the build — not something to improvise on the first hard file.

What to watch next

Three things from the review are worth a diary note.

First, timing. Banking and finance complaints closed faster in 2025–26 — an average of 53 days, down from 62, with 64 per cent resolved at the referral stage, per The Adviser’s reporting. But 32,087 complaints were still open at 30 June 2026, of which banking and finance made up 12,685, or about 40 per cent. The system is clearing more while carrying more.

Second, direction. Locke’s comment that complaints are already increasing in the first quarter of the new financial year means the 2026–27 review is unlikely to read better.

Third, scope. Locke noted AFCA’s expanded scams role begins in under six months, with the Australian Scams Ombudsman to be operated by AFCA. That is not a broker obligation on its face, but it changes the volume and mix of what the scheme handles, and brokers with clients caught in payment redirection or application fraud will be dealing with a different front door.