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Responsible lending hasn’t blocked consumer credit: ASIC

Lenders have given no indication that responsible lending obligations have clogged the supply of consumer credit, an ASIC commissioner has said, as the regulator eagerly awaits the fate of the laws.

During the height of the COVID-19 crisis, consumer credit was not in high demand, ASIC commissioner Sean Hughes told Senate estimates on Wednesday (3 June). Rather, refinancing and deferrals were the primary requests for lenders.

Responsible lending obligations also have not applied to mixed-purpose loans since Treasury introduced an easing provision last year, where any portion of a loan is intending for business purposes.

“As at this point Senator, we are yet to see any empirical evidence that responsible lending has impeded the flow of credit to consumers,” Mr Hughes told senator Nick McKim and the rest of the Senate economics legislation committee.

New loan commitments to housing rose by 5 per cent in March and 55.3 per cent year-on-year, the commissioner noted.

“Obviously there has been a very, very strong demand for loan finance for housing in the last few months, and it’s reflected in those numbers,” Mr Hughes said.

“All I can do is reiterate that in terms of the lateral conversations ASIC has had with both major, regional and smaller lenders, such as those represented by the ABA [Australian Banking Association] and COBA [Customer Owned Banking Association] and in our discussion at an industry-wide level, we have not had any lenders say to us that responsible lending obligations administered by ASIC are inhibiting the supply of credit to consumers.”

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Further, no bank chief executives had indicated that responsible lending requirements posed any impediments in other parliamentary hearings, the commissioner said.

Following the loss of the infamous Westpac “wagyu and shiraz” case, ASIC has re-examined its approach to enforcing the responsible lending legislation.

Mr Hughes revealed the regulator has since moved on to consider whether it should proceed with the potential responsible lending cases it had lined up. For instance, ASIC will not be proceeding with any cases that relate to the Household Expenditure Measure benchmark, which is used by Westpac.

“We do have matters that are in the pipeline that do not go to the issues that were raised in the Westpac case,” Mr Hughes told Senator McKim.

“But naturally Senator, we are not blind to the realities of the proposed reforms. And we wait to see what the outcome of the government’s [passage of the bill] will be.”

Despite criticisms on ASIC’s industry guidance claiming that it added complexity and uncertainty to the obligations, Mr Hughes defended the document and the regulator’s consulting process.

“The lengthy number of examples, case examples that we provide in that guidance, were inserted at the request of lenders themselves,” he said.

The government’s planned repeals to the responsible lending obligations, under the National Consumer Credit Protections Act 2000, are due to be voted on when the Senate meets in mid-June.

The bill, which Treasurer Josh Frydenberg has stayed firm on, has seen growing opposition from crossbenchers, the most recent being Tasmanian senator Jacqui Lambie.

One Nation leader Pauline Hanson and independent senator Rex Patrick have also indicated they will not support the bill, while consumer advocate groups such as CHOICE have also voiced their disapproval for the repeal.

ASIC has advised Treasury on the laws. Should the changes pass, the regulator will be tasked with enforcing them alongside fellow watchdog APRA.

“We are aware that there has been some perception that there is a divergence between ASIC’s responsible lending guidance – and it is only guidance, it is not the law, it’s simply our interpretation – and APRA’s enforceable prudential standards,” Mr Hughes said.

“And that is something looked on with concern to make sure that is not the case. And we remain keen to work with APRA if the reforms are enacted to ensure that there is harmony or synergy between the prudential standards, which apply to ADI lenders, and how they are applied by us, to non-ADI lenders.”

[Related: Rising fixed rates and RLO debate heats up again]

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