ASIC insists it won’t toughen lending guidance

In February, the Australian Securities and Investments Commission (ASIC) stated that it considered it “timely” to review and update its responsible lending guidance (RG 209) – in place since 2010 – in light of its regulatory and enforcement work since 2011, changes in technology and the release of the banking royal commission’s final report.

ASIC added that its review of RG 209 will consider whether the guidance “remains effective” and will seek to identify changes and additions to the guidance that “may help holders of an Australian credit licence to understand ASIC’s expectations for complying with the responsible lending obligations”.

However, in a quarterly statement from the Council of Financial Regulators (CFR), it was suggested that ASIC would not be looking to toughen its guidance.  

“Members were updated on ASIC’s public consultation on its responsible lending guidance. The responsible provision of credit is a cornerstone of consumer protection and is important to the Australian economy,” the CGR statement reads.

“It was noted that the consultation is not about increasing requirements, but rather, clarifying and updating guidance on existing requirements.”

This sentiment was also expressed by ASIC commissioner Sean Hughes in an op-ed published in the media earlier this week.

Mr Hughes claimed that the corporate watchdog did not intend for its initial guidance to trigger a crackdown on living expenses and create uncertainties over the use of benchmarks like the Household Expenditure Measure.

“Despite what you may hear or read, ASIC has never expected or proposed that lenders scrutinise every discretionary expense that a consumer might incur,” he said.

“[We] know that in reality, many consumers adjust their living expenses after obtaining a mortgage.

“Nor have we ever suggested that lenders cannot use benchmarks, like the HEM, to assist them meet their responsible lending obligations.”

This follows last week’s release of a cache of submissions from mortgage industry stakeholders, submitted during ASIC’s first round of consultation.

Stakeholders have uniformly called for greater clarity in ASIC’s guidance but have proposed different frameworks to resolve discrepancies in its application.

Most stakeholders have expressed support for the retention of a principles-based approach to guidance, which they have said encourages innovation and provides the industry with greater flexibility.  

Others, including the Commonwealth Bank of Australia noted the benefits of a prescriptive approach, claiming that it would provide “greater clarity and specificity” to “ensure customers experience consistency in steps taken regarding their credit applications”.  

ASIC will host public hearings in August to further consult on its proposed changes, with stakeholders invited to participate in the hearings to be drawn from the groups or individuals who provided a written submission to ASIC in the first round of consultation.

The hearings will be held in Sydney and Melbourne.

Mr Hughes has stressed that the hearings are an “information-gathering exercise, not an inquisitorial pursuit or grilling”.

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