Following two rounds of public consultation, the Australian Securities and Investments Commission (ASIC) has published updated guidance (RG 209) on the responsible lending obligations that are contained in the National Consumer Credit Protection Act 2009.
The new guidance is designed to provide greater clarity and support to lenders and brokers in meeting their obligations, particularly in light of uncertainty that arose following the banking royal commission.
As anticipated, ASIC has maintained principles-based guidance, which the regulator has said would “support flexibility for licensees”.
Among the changes in ASIC new guidance are:
- a stronger focus on the legislative purpose of the obligations – to reduce the incidence of consumers being encouraged to take on unsuitable levels of credit, and ensure licensees obtain sufficient, reliable and up-to-date information about the consumer’s financial situation, requirements and objectives to enable them to assess whether a particular loan is unsuitable for the particular consumer;
- more guidance to illustrate where a licensee might undertake more, or less, detailed inquiries and verification steps based on different consumer circumstances and the type of credit that is being sought;
- More detailed guidance about how spending reductions may be considered as part of the licensee’s consideration of the consumer’s financial situation, requirements and objectives;
- more detailed guidance about the use of benchmarks as a way to check the plausibility of expenses, as well as additional guidance about the Household Expenditure Measure benchmark;
- clarity about more complex situations for some consumers – for example, the different situations of consumers, such as income from small business, casual employees, new employees, the gig economy, as well as joint and split liabilities and expenses.
The regulator has also sought to provide clarity concerning the scope of responsible lending by identifying the areas that are not subject to the obligations, which include small-business lending – irrespective of the nature of the security used for the loan.
Following the release of RG 209, ASIC commissioner Sean Hughes said: “ASIC conducted extensive consultation on this important issue.
“The public hearings and submissions highlighted the areas where industry sought clarification from ASIC.
“We have listened carefully to all stakeholders and addressed areas where we consider updated guidance would help. We hope that today’s guidance will assist industry to more confidently make responsible lending decisions and to facilitate good lending outcomes for consumers.”
ASIC added that the new guidance also reflects technological developments including open banking and digital data capture services.
More to come
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