Fronting the Senate economics legislation committee yesterday (25 March), the Australian Prudential Regulation Authority (APRA) was asked to clarify its role in managing lending standards should the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 pass Parliament.
The bill, which has been postponed to at least May, focuses on amending the credit laws so that they remove responsible lending obligations (RLOs) and extend the best interests duty (BID) to more credit assistance providers, among other changes.
The subject of consumer protections and the ability for individuals to hold lenders to account has been the main subject of controversy facing the bill.
As such, Labor senator for NSW, Jenny McAllister, asked the prudential regulator questions relating to consumer protections and enforcement should the RLOs be removed.
Ms McAllister asked APRA what focus it would have in “ensuring that individual loans are fair and not putting the consumer in unreasonable hardship” if the bill was passed.
Responding, John Lonsdale, deputy chair of APRA, commented: “APRA’s role will remain unchanged, it will remain focused on the prudential promise which is really that depositors can get their money safely, and there’s financial safety of institutions and the system itself.”
Mr Lonsdale highlighted that prudential standards such as APS 220 had recently been under consultation and were set to be refreshed in order to put in “more granular requirements that require ADIs to look very closely and prudential assessment and verification of borrowers, both in terms of their income and expenses,” outlining that the updated standard also provided specific examples.
The APRA deputy chair continued: “So we’re still at a system and entity level, but there’s more granularity in terms of what we’re requiring. The main difference, I think, in terms of what we were doing and what we’re now doing under the credit reforms is aligning the regulatory regime,” he said.
“We were going to start from January 2022 with [A]PS 220,” Mr Lonsdale continued.
“So, depending on when the government legislation (or if the government legislation passes), we would align our new start date so that there’s no gap in the regulatory treatment between ideas and new ideas.”
Given that the industry has been aware of the details of the new APS 220 since late 2019, APRA has previously stated that it expects banks to already be complying with the new APS 220 requirements. (However, it has also outlined that should government’s proposed reforms not pass as legislation, the changes would be unnecessary and APRA would not progress the proposed revisions).
When asked to elaborate further on whether APRA would be able to pursue or prosecute individual cases of irresponsible lending in relation to mortgage products, credit cards or personal loans, Mr Lonsdale said: “No, we would not be doing that. It’s not part of the role of the prudential mandate.”
The NSW senator asked whether APRA had ever pursued enforcement action for breach of prudential standards, to which APRA chair Wayne Byres said that the first port of call would be for APRA to issue a direction to comply with the relevant prudential standard and, “only if they then fail to comply with the direction are there potentially further enforcement actions that [APRA] can take”. This would ultimately involve going to court to ask the court to order the entity to comply, he said.
Mr Byres caveated this by saying: “But rarely do we have to get to the point of issuing the direction, because if we see an activity, or something that we think is a breach, then we would ask for it to be fixed. Often it is.”
The APRA chair concluded: “If you think of the way the system works now, or in any particular way it will work under the proposed reforms, you’ll have APRA setting the standards that are applied, and the policies that are applied.
“The primary mechanism through which individual complaints will be handled will be the Australian Financial Complaints Authority (AFCA). So, they will be dealing with incidents in the first instance, and we will channel any consumer complaints we get to AFCA and they, in turn, have an obligation to report to us if they see any things that they think are examples of systemic poor practice or systemic bad lending,” Mr Byres said.
“So, I think the distinction is quite clear; we’re looking at the system-wide aggregate [lending], the portfolio, and the individual customer matters, to the extent that customers have been dealt with unfairly, and the external dispute resolution mechanism, is through AFCA.”
He continued: “[I]f there was a sense of some systemic behavior that might go to misleading and deceptive conduct – or some other sort of breach of good prudential practice – then either ASIC or APRA may have a role to pursue that. To the extent that there are remediation programs needed (so, for example, we have seen cases where consumers have been charged fees that they shouldn’t have been charged etc) if there was a remediation needed, we would be overseeing those programs and remediation. But again, it is not an individual customer-by-customer job for us.”
The APRA chair told the Senate economics legislation committee: “We don’t perceive ourselves [as] receiving any functions [under the proposed reforms]. The government’s announcement was – and these may not be the exact words – that APRA will continue to regulate ADIs, in accordance with its existing standards.
“So, we see ourselves doing what we’ve been doing... [status quo] for us, on our patch. ASIC will have to do a similar sort of role for the non-ADIs, and AFCA will be dealing with the individual customer complaints for both ADIs and non-ADIs.”
The progression of the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 was recently delayed, after the Senate adjourned the debate of its second reading until 11 May.
This came despite the final report of the Senate economics legislation committee inquiry recommending that the bill progresses, and the bill passing the House of Representatives on Monday (15 March).
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Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.