ASIC’s guidance in relation to responsible lending has been in place since 2010 and whilst there has been no change in the law to date, ASIC considers Regulatory Guide 209 – Credit Licensing: Responsible Lending Conduct (RG209) requires an update. This comes as a result of:
- the Royal Commission;
- ASIC’s enforcement work since RG209 was issued; and
- changes in technology impacting the consumer lending industry.
This applies not just to banks, but to all ACL holders authorised to issue credit in accordance with the National Consumer Credit Protection Act 2009 (NCCP).
The Royal Commission Reports noted that the inquiry and verification steps taken by lenders were often insufficient. The overarching approach of ASIC’s Consultation Paper 309 (CP309) is to determine whether to identify particular inquiry and verification steps in ASIC RG209 which would provide greater certainty to credit licensees. CP309 seeks to address several issues as noted below.
ASIC’s Proposed Changes to RG209
ASIC’s proposals include updates or clarification to the following aspects of RG209:
- The kinds of information required to verify a consumer’s financial situation
ASIC are considering expanding the list of types of verifying information in Table 4 of RG209. Possible further types of information to be included in the new guidance include:
- Income tax returns;
- Bank statements recording income payments;
- Centrelink statements;
- Contracts, invoices or accounts, or bank statements recording living expenses such as rent, child support or spousal maintenance, insurance, child related expenses;
- Transaction account statements – for deposit and credit accounts;
- Data aggregation reports.
The proposed new verifying information table also includes a list of information which can be confirmed through each source and whether the information is readily available.
- The role of expenses benchmarks in the process of verification
One of the findings of the Interim Report related to lenders obtaining verifying information but having no regard to it when determining whether a credit product was ‘not unsuitable’ for a consumer. ASIC’s proposed expansion of their guidance on this issue includes an “if not, why not” approach. Overall, ASIC considers that if an ACL holder has access to a form of verification, steps should be taken to obtain it and have regard to it in their assessment of the credit product.
- Clarification of guidance in relation to benchmarks
This comes as a result of previous ASIC reports and the Reports of the Royal Commission finding that some credit providers had a practice of defaulting to the use of a benchmark figure rather than making inquiries into the consumer’s actual expenses.
- Reasonable inquiries into the consumer’s requirements and objectives
ASIC is specifically seeking to update their guidance to reflect findings in Report 493 which outlined a number of deficiencies in this area, particularly in relation to the inquiries undertaken by mortgage brokers when assessing whether interest only loans met the requirements and objectives of the consumer. ASIC is also seeking to clarify that simply seeking the sole, high-level purpose of the credit product is not sufficient. The guidance in RG209 requires inquiries to be made into the consumer’s objectives and requirements. ASIC proposes that their guidance should be clarified to ensure ACL holders understand the consumer’s specific requirements and objectives and then identify the specific features, benefits and costs associated with the credit contract relevant to those requirements and objectives.
ASIC also proposes the inclusion of additional guidance on the following issues:
- The areas where responsible lending obligations do not apply – ASIC is looking to clarify these areas as a result of feedback they have received noting that licensees are applying the obligations where they are not required by law.
- The role of the responsible lending obligations in mitigating fraud and risk factors which indicate additional steps should be taken – specifically ASIC is proposing to include guidance in relation to the procedures licensees should have in place to identify false or unreliable documentation.
- How repayment history information may be used – for instance, repayment difficulties for one credit product does not necessarily preclude the consumer from obtaining another credit product. Rather, ASIC proposes the inclusion of guidance relating to the additional inquiries required and to discourage licensees from treating negative repayment information as a trigger for refusal of the credit product.
- Maintaining records of inquiries and the verification steps taken – this was an issue raised by the Reports and ASIC’s Report 492. The proposed additional guidance will include a description of the procedures ASIC considers licensees should implement to demonstrate compliance.
- The information to be included in a written assessment – at present, RG209 includes high level guidance on this issue. ASIC proposes to more clearly outline the information to be included in a written assessment with the purpose of improving disclosure to consumers.
The Interim and Final Reports of the Misconduct in the Banking, Superannuation and Financial Services Royal Commission have made a number of comments and recommendations in relation to consumer lending, particularly in relation to the responsible lending practices by lenders.
Further, ASIC is seeking feedback in relation to Consultation Paper 309. Submissions from interested parties must be sent to ASIC by 20 May 2019.
- Regulatory Guide 209: Credit Licensing: Responsible Lending Conduct (RG209)
- ASIC Report 445 – Review of Interest-Only Home Loans
- ASIC’s Report 492 – A Market that is Failing Consumers: The Sale of Add-On Insurance through Car Dealers.
- ASIC Report 493 – Review of Interest-Only Home Loans: Mortgage Brokers’ Inquiries into Consumers’ Requirements and Objectives.
Should you have any questions about ASIC’s consultation or how the proposed changes to RG209 could affect your business, please do not hesitate to contact us.