In their responses to the Australian Securities and Investments Commission’s (ASIC) request for consultation regarding its push to update its responsible lending guidelines (RG 20), both the Australian Banking Association (ABA) and the Customer Owned Banking Association (COBA) flagged competition risks associated with a move towards a prescriptive approach to guidance, which would see ASIC propose specific guidelines for the verification of a borrower’s suitability for a loan.
Most stakeholders, including three of the big four banks, have expressed support for the existing principles-based approach, which they have said encourages innovation and provides the industry with greater flexibility.
Others, including the Commonwealth Bank of Australia (CBA) 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”.
However, the ABA submitted that customers are “best served” by a principles-based approach.
The banking association stated that it is concerned a move away from a principles-based approach would “negatively affect competition” by:
- disadvantaging smaller ADIs or new entrants with less sophisticated systems as their ability to invest in updated or new technology may be limited and typically have less access to readily available transaction account data
- discouraging switching: deter consumers from switching products or financial institutions over time, if they perceive the application process to be overly burdensome or prolonged
- providing incentives for consumers to access credit like products from providers that are not regulated under the National Consumer Credit Protection Act
COBA also noted the competitive risks associated with a prescriptive approach, stating that it may further advantage larger ADIs.
“Overly onerous requirements, particularly with respect to data verification, may advantage larger players who have access to much larger pools of data as incumbents,” COBA submitted.
“Similarly, restricting flexibility or requirements to use particular technologies can both prevent innovation and impose unnecessarily costs on licensees.”
However, COBA expressed support for changes to ASIC’s guidance that would limit competition “based on lending standards”.
“This would generally be a positive outcome,” COBA stated.
“This may be important in the broker space where multiple lenders are on the same panel.
“COBA notes that ADIs have recently been subject to increased APRA scrutiny in this area. Further clarity in RG 209 expectations could potentially enhance the competitive position of more prudent and conservative lenders.”
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.