ASIC consults on updating its responsible lending guidance

ASIC has today issued a consultation paper to update its guidance on responsible lending (CP 309).

The changes appear mainly clarifications and tweaks to language rather than substantive changes. But it does underscore the lenders obligations to make reasonable inquiries when making a loan. Nothing here that would open the credit taps, that I can see.

They are asking questions about credit which currently falls outside the guidelines, such as SACC and Business loans.

They do address HEM benchmarks saying that ” A benchmark figure does not provide any positive confirmation of what a particular consumer’s income and expenses actually are”. Its a plausibility test.

We propose to clarify our guidance in RG 209 on the use of benchmarks as follows:

(a) A benchmark figure does not provide any positive confirmation of what a particular consumer’s income and expenses actually are. However, we consider that benchmarks can be a useful tool to help determine whether information provided by the consumer is plausible (i.e. whether it is more or less likely to be true and able to be relied upon).

(b) If a benchmark figure is used to test expense information, licensees should generally take the following kinds of steps: (i) ensure that the benchmark figure that is being used is a realistic figure, that is adjusted for variables such as different income ranges, dependants and geographic location, and that is not merely reflective of ‘low budget’ spending; (ii) if the benchmark figure being referred to is more reflective of ‘low budget’ spending (such as the Household Expenditure Measure), apply a reasonable buffer amount that reflects the likelihood that many consumers would have a higher level of expenses; and (iii)periodically review the expense figures being relied upon across the licensee’s portfolio—if there is a high proportion of consumers recorded as having expenses that are at or near the benchmark figure, rather than demonstrating the kind of spread in expenses that is predicted by the methodology underlying the benchmark calculation, this may be an indication that the licensee’s inquiries are not being effective to elicit accurate information about the consumer’s expenses

This is the ASIC announcement:

ASIC’s guidance has been in place since 2010 when the responsible lending laws were first introduced. Although the laws have not changed since 2010, ASIC considers it timely to review and update the guidance in light of its regulatory and enforcement work since 2011, changes in technology, and the recent Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

Our review of RG 209 will consider whether the guidance remains effective and identify changes and additions to the guidance that may help holders of an Australian credit licence to understand ASIC’s expectations for complying with the responsible lending obligations.

ASIC welcomes submissions on the update of our guidance on responsible lending from any interested party. In the consultation paper we have asked a series of questions about specific matters. We are also keen to hear from stakeholders about any other issues considered important that are not dealt with in the consultation paper.

ASIC is also considering whether to provide an opportunity for key stakeholders to speak to the Commission at public hearings in addition to making written submissions.

Further information about the consultation and its progress will be available on the ASIC website.

“The responsible lending obligations are an integral part of the regulatory framework for all consumer loans” said ASIC Commissioner Sean Hughes. “ASIC wants to ensure its guidance provides industry with certainty, including as a result of emerging technology and initiatives such as open banking and comprehensive credit reporting. We encourage everybody to participate in this extensive consultation process”.

The consultation is open for a period of three months, with comments due by Monday 20 May 2019.

Background

Regulatory Guide 209 Credit licensing: Responsible lending conduct (RG 209) contains ASIC’s guidance on responsible lending for consumer credit. RG 209 was issued in 2010 and last revised in November 2014.

Since then there have been many matters that now mean it is timely for ASIC to update its guidance.

• ASIC regulatory and enforcement actions, including court decisions,
• ASIC thematic reviews on various parts of the industry such as interest-only loans,
• the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry,
• Recent and upcoming initiatives such as comprehensive credit reporting and open banking, and 
• Changes in technology.

ASIC has also received anecdotal feedback that licensees may be applying the responsible lending obligations where the law does not require them to be applied (e.g. in small business lending). We are seeking feedback on whether there is a need to include some additional guidance in RG 209 which sets out particular examples where the law does not require responsible lending or related obligations to apply.