ASIC has clarified when a licensee might undertake more or less detailed inquiries and verification steps based on different consumer circumstances and the type of credit being sought.
ASIC (Australian Securities and Investments Commission) has published updated guidance offering clarity to lenders and brokers in meeting their responsible lending obligations.
ASIC’s decision to update its guidance followed a number of developments, including a high profile case against Westpac in which a federal court judge decided the bank did not breach the responsible lending provisions, ruling that a lender “may do what it wants in the assessment process” and that a customer’s current living expenses are “immaterial” to deciding whether they could afford repayments on a loan.
The updated guidance follows an extensive consultation process, where ASIC received 72 submissions to a February consultation and followed-up with public hearings to understand the views of industry representatives, consumer groups, academics and service providers.
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The changes to Regulatory Guide 209 include a stronger emphasis on the legislative purpose of the obligations — to reduce the incidence of consumers being encouraged to take on unsuitable levels of credit, and ensure licensees obtain sufficient reliable and up-to-date information about the consumer’s financial situation, requirements and objectives to enable them to assess whether a particular loan is unsuitable for the particular consumer.
The update also provides more guidance to illustrate where a licensee might undertake more, or less, detailed inquiries and verification steps based on different consumer circumstances and the type of credit that is being sought.
In this regard, the guidance includes new examples about a range of different credit products (large and longer-term loans, credit card and personal loans, small amount loans, consumer leases) and different kinds of consumer circumstances (first home buyers, existing customers, strata corporations, high net worth and financially experienced consumers) and complex situations.
The updated guidance also details how spending reductions may be considered as part of the licensee’s consideration of the consumer’s financial situation, requirements and objectives, and how benchmarks (including the HEM benchmark) should be used to check the plausibility of expenses.
ASIC has also included a section on the scope of responsible lending, explaining the areas that are not subject to responsible lending obligations – such as small business lending irrespective of the nature of the security used for the loan.
The guidance has also been updated to reflect technological developments including open banking and digital data capture services, noting that the cost and ease of access to transaction information will improve over time and enhance lenders’ overall view of a consumer’s financial situation.
“What we’ve tried to do is make it easier for lenders to comply with their obligations by providing them more detailed information about what they need to do,” said ASIC commissioner Sean Hughes. “The provision of credit is ultimately a decision for banks.”
The ABA (Australian Banking Association) has issued a statement welcoming the updated guidance, hailing it as an “important milestone in clarifying responsible lending obligations for banks.”
“The industry is pleased to see ASIC has maintained a principles based approach to lending, which as an industry we have called for, and to ensure banks are able to fulfil their obligations without the process becoming too restrictive for customers,” said ABA chief Anna Bligh.