Strict serviceability rules ‘lead to poor customer outcomes’

During a Q&A at the Banking and Finance Oath’s Crossroads conference, the chief executive of the Australian Banking Association (ABA), Anna Bligh, said overly strict loan serviceability assessments “defy common sense” and are “leading to poor customer outcomes”.

“People who have a credit card at a high rate, they’ve had it for 10 years, they change jobs, and their income has dropped, but never missed a payment. If they want to go and get a new credit card from the same bank [at] a lower interest rate that would be better for them, they no longer meet the strict serviceability [and] can’t change from a higher interest rate to a lower interest rate,” she said.

“It defies common sense, defies the best outcome for the customer.” 

Ms Bligh called for laws and regulatory guidance that are “open to some level of interpretation” so that compliance involves exercising judgement.

“That judgement has to be well informed by a set of personal ethics, I think, but also [by consideration to] ‘what was this law intended to achieve?’” the ABA chief executive added. 

As such, she believes compliance “covers a broad spectrum”, with some aspects being clearly “black and white”. But removing the flexibility to exercise judgement based on the needs and circumstances of individual customers can lead to poor customer outcomes. 

“The real skill of good banking is the ability to adequately assess risk, exercise judgement, exercise care, and make good assessments of what is the best interest of the customer as a whole, taking into account all of their circumstances,” Ms Bligh said. 

“If we lose that… then I think there’s nothing in the public interest in that outcome.”

While the financial services royal commission did not propose any changes to responsible lending laws, the ABA chief said the same careful and rigorous approach should be applied to amending the responsible lending regulatory guidance (RG 209), which the Australian Securities and Investments Commission (ASIC) is currently in the process of. 

During the Crossroads conference, Ms Bligh also mentioned that banks have been grappling with the “tango of issues” around the areas of lending that can be dealt with through “principles-based law” versus “black letter law”, adding that “hard cases can make bad law”. 

“If you respond to a particular case that had devastating consequences for the individual in the wrong way, you might affect in a disadvantageous way a much broader group and cohort of people,” the ABA chief executive said. 

“Trying to get that balance right is absolutely critical.”

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