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ANZ CEO laments responsible lending quagmire

Lenders are “stuck in the middle”, navigating conflicting interpretations of responsible lending obligations that have suppressed risk appetites, according to ANZ CEO Shayne Elliott.

Appearing before the House of Representatives standing committee on economics on Friday (4 September), ANZ CEO Shayne Elliott called for further clarity around the responsible lending obligations of Australia’s credit providers.

Mr Elliott said recent interpretations of the National Consumer Credit Protections (NCCP) Act have caused lenders to adopt overly conservative credit policies, echoing remarks made by governor of the Reserve Bank of Australia (RBA) Philip Lowe in his testimony before the committee last month.

“We all want to [lend responsibly]. It’s in our interests – nobody disagrees with the intent,” he said.

“The issue here is with the interpretation.”

According to the ANZ chief, such interpretations have made it difficult for lenders to identify the responsible lending boundaries, causing credit providers to increasingly distance themselves from the “grey line” to avoid stricter penalties imposed in the aftermath of the banking royal commission.

“The only rational response to that is stay away from the line, so you just stay away from the line [and] build a buffer,” he continued.

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“So, yes, we have become more and more cautious. The more the line can turn from grey to black, the better, the closer we get to the original intent.

“We are all for greater transparency, greater clarity, greater guidance from our regulators.”

Mr Elliott used the example of conflicting guidance from the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) around the level of scrutiny required for the conversion of principal and interest (P&I) loans to interest-only (IO).  

The chief executive noted that ASIC’s guidance does not require lenders to conduct a full responsible lending assessment for those converting from P&I to IO, while APRA requires a “soup to nuts review”.

Mr Elliott went on to add that the Australian Financial Complaints Authority also has a “slightly different approach” to responsible lending.

“So, part of it is the navigation between the various agencies and their interpretations, which are, on their own, not unreasonable, but we’re stuck in the middle having to navigate those,” he said.

Liberal MP and committee member Jason Falinski put it to Mr Elliott that such complexities have added “considerable costs” to undertaking transaction and have made “otherwise viable loans become unviable”.

Mr Elliott replied: “Yes, in theory that is true.”

The ANZ CEO concluded: “I am not here in front of this committee to say, ‘I would like permission to do irresponsible lending please’ – that’s not what we’re asking for.

“What we’re asking for is clarity, alignment and coherence. 

“By the way, I get no sense from our regulators that they don’t disagree, but they are encumbered by the laws that they’re asked to uphold.” 

ASIC recently revealed that in light of the Federal Court’s decision to dismiss its case against Westpac, it would review its updated regulatory guidance (RG 209) and consider the implications of the Federal Court’s decision on compliance practices.

ASIC issued its new guidance in December 2019, after holding two rounds of public consultation with industry stakeholders. 

The principles-based guidance was designed to provide lenders with greater clarity and flexibility amid uncertainty off the back of scrutiny from the banking royal commission. 

However, ASIC has stressed that prospective reforms of the NCCP Act to further clarify the enforcement of responsible lending obligations is “ultimately a matter for the federal government and Parliament”.

[Related: Responsible lending ‘pendulum’ has ‘swung too far’: Lowe]

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