ASIC commissioner caught unawares over credit changes

Appearing before the House of Representatives standing committee on economics’ review of financial regulators on Friday (23 October), the Australian Securities and Investments Commission (ASIC) commissioner, Sean Hughes, told the committee that he was first advised of the federal government’s proposal to scrap responsible lending obligations from the National Consumer Credit Protection Act 2009 (NCCP) on the morning of 25 September, when he read Treasurer Josh Frydenberg’s media statement through the media.

The government has said it hopes the reform would simplify the credit process by shifting from a “lender beware” model to a “borrower responsibility” model, which could reduce risk.

Mr Hughes was responding to a question by the committee about when ASIC was informed of the government’s intention to scrap the responsible lending obligations, given that he is the commissioner responsible for overseeing credit policies at ASIC.

He was asked again by the committee about whether he was provided with advanced notice that “the government was going to go against the royal commission recommendation” regarding responsible lending obligations, and whether he was asked to provide any advice.

To this, he responded: “I’m speaking on my own behalf as the responsible commissioner for this area. I don’t know whether there was communication between the Treasurer and his office, and Mr Shipton [James Shipton, ASIC chair].”

“However, it is not unusual for government policy to be announced and then, in this case, for Treasury to work with relevant regulators to implement that policy, and that’s what is happening on this occasion.”

Mr Hughes was asked by the committee if the government’s position on the responsible lending obligations contradicted ASIC’s submission to the Senate standing committee on economics (Senate inquiry into consumer protection in the banking, insurance and financial services sector in March 2017).

The submission said: “The credit reforms have gone a long way towards addressing many of the issues that were prevalent throughout the credit industry before 2010.”

Mr Hughes responded that he could not speak to a submission that was released during a period when he was not the commissioner at ASIC.

“But what I can say is that this is a matter of government policy. From reading the Treasurer’s statement on 25 September, it is apparent that the Treasurer and the Assistant Treasurer believe that this policy is necessary to address the economic impacts of the [coronavirus] pandemic,” he said.

“From ASIC’s point of view, we’re just getting on with instructions we’ve been given to support Treasury to implement those reforms.”

When asked whether he would like lenders to improve approval times further, Mr Hughes said this was not an issue for ASIC.

He said each lender has its own approval mechanisms, with some being more automated and technology-driven than others, adding that it is a matter for each lender to apply its own credit risk and loan application process.

“Our role is to oversee and administer the credit regime, which sets the minimum standards for banks undertaking their enquiries and their assessment duties,” Mr Hughes said.

“Of course, if the government’s policy is enacted through the Parliament, then our role in relation to that will move away from the ADI lenders and will be more focused on small amount credit contracts and consumer leases.”

Home loan deferrals moves to ‘bespoke’ phase

Responding to queries about home loan deferrals, Mr Hughes went on to outline that while the corporate regulator is engaging in consultations and discussions with banks and their representative bodies, it had not found any reason for concern thus far.

“At this stage, we’re not seeing any specific areas of systemic concern in the way in which banks are dealing with those customers who are in particular hardship,” he said.

However, as many borrowers approach the end of their home loan deferral period, Mr Hughes emphasised that it was important that borrowers would could resume repaying their loans, do so as quickly as possible.

“It will be fair to say that there is a strong preference, and this is one that we have encouraged as well, where borrowers [who] can afford to repay their loans either in full or in part in terms of their usual repayments, should do so,” Mr Hughes said.

“It is very much in their interests to resume repayments as quickly as possible.”

But he acknowledged that there would be borrowers who may need to make modifications to their loan structure by, for instance, shifting to an interest-only loan, or extending their deferral period.

Noting that the economies of different states and territories have and continue to open up at different speeds, Mr Hughes said lenders are transitioning to what he called “a more tailored period”.

“We’re now moving into what we call a more tailored period where banks are taking individualised approaches with borrowers to assess what their individual circumstances should be,” he said.

“We are moving to a much more bespoke and tailored period through to the beginning of 2021.”

[Related: APRA expands capital concession for COVID-impacted loans]