The year in credit: An update from ASIC

It's no secret that 2017 has been a big year for credit regulation in Australia. The Australian government, ASIC and the other financial regulators are all actively working to improve credit laws and regulations for industry and consumers.

A big part of the work ASIC does centres on the responsible lending conduct obligations in the National Consumer Credit Protection Act. This includes everything from reviewing specific sectors to see whether they are compliant with the law; overseeing firms when they breach their obligations; and taking enforcement action, where necessary.

In my address to the 27th Credit Law Conference on 11 October, I gave an update on the work ASIC has done in credit this year as well as the current work we have underway.

Home lending

We've taken the next step in our interest-only loan work, with a targeted review of brokers and lenders that have a high proportion of interest-only loans. These loans can now be more expensive than principal and interest loans, and do not always meet the needs of the consumer, and this review will look at why lenders and brokers recommend these loans to their clients.

We now have data from 16 lenders about the level of interest-only home loans they have recently provided. The specific lenders and brokers that will be the focus of our file review will be notified shortly.

In March of this year, ASIC commenced legal proceedings against Westpac, where we allege they breached their responsible lending obligation in the provision of home loans. This case is currently underway.

We've also started scoping our loan application fraud project, and work has begun on our review of the reverse mortgage lending industry.

Car finance

Following last year's significant $77 million enforceable undertaking with BMW Finance, ASIC has continued to focus on car financing. In September, we formally banned flex commissions in the car finance market.

We found that these commissions, which allow the dealer to set the interest rate, lead to consumers paying excessive interest rates on their car loans, at times 700 basis points above the base rate.

We've also recently asked for feedback on our proposed reforms to the sale of add-on insurance and warranties sold through car dealerships, with consultation concluding later in October 2017.

Industry engagement and feedback has played an important role in developing these reforms, and we will be engaging further with stakeholders as we progress any changes to the regulatory requirements.

Credit cards

In this year's Budget, the Australian Government announced a series of reforms targeting responsible lending and credit cards. We've started our work to complement these reforms, which includes looking at consumer outcomes around balance transfers and credit cards.

We've also brought together industry and consumer advocates to look at consumer credit insurance (known as CCI). This working group will progress a range of reforms, including a deferred-sales model for CCI sold with credit cards over the phone and in branches. This has been a great example of stakeholders coming together to improve outcomes for industry and consumers without the need for new legislation.

ASIC is also fostering innovation by helping Australian fintech start-ups navigate our regulatory system with our Innovation Hub that provides eligible start-ups licensing and regulation support.

With the spotlight on credit, it's clearly a busy time for ASIC and the sector. We look forward to providing further updates as our work in this area progresses.

Michael Saadat leads the team responsible for oversight of consumer banking, insurance companies, credit providers, mortgage brokers and other credit intermediaries, trustee companies in their traditional activities, non-cash payment facility providers, and ASIC's Indigenous Outreach Program. Michael is also ASIC's Regional Commissioner for New South Wales.

Prior to this, Michael worked as Director and Head of Compliance for Citigroup's Consumer Bank in Australia. He has also previously worked at ASIC as a senior lawyer and senior manager, and as a consultant at PricewaterhouseCoopers in London and Sydney. Michael has Bachelor of Economics and Bachelor of Laws (Hons) from Macquarie University, a Master of Laws from the London School of Economics, and an Executive MBA from Melbourne Business School.

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