Brokers could face challenges to meet ASIC’s responsible lending guidelines in the wake of The Cash Store case, says a leading solicitor.
In November 2014, ASIC updated its guidance for credit licensees following a Federal Court decision that saw a lender taken to task over verifying clients’ living expenses. The regulator updated RG 209 to reflect the Federal Court's ruling in ASIC's case against The Cash Store.
The ruling found that payday lender The Cash Store and loan funder Assistive Finance Australia had failed to comply with responsible lending obligations. According to ASIC, many of the companies’ clients were on low incomes or in receipt of Centrelink benefits.
ASIC said the updates to RG 209 reflect the findings of the Federal Court, as well as to make it clear that credit licensees “cannot rely solely on benchmark living expense figures rather than taking separate steps to inquire into borrowers’ actual living expenses”.
“The Federal Court's decision makes it clear credit licensees must, at a minimum, inquire about the consumer's current income and living expenses to comply with the responsible lending obligations. Further inquiries may be needed depending on the circumstances of the particular consumer,” ASIC said in a release which accompanied the decision.
However, Jon Denovan, a partner at Gadens law firm says lenders and brokers find themselves facing challenges to meet ASIC’s new guidelines.
“How can licensees meet both customers’ immediate requirement and objective of a fast and easy approval, while at the same time meeting the legal obligation to enquire and verify information about ability to repay and the customer’s ‘underlying requirements and objectives’?” Denovan said.
“The Cash Store case demonstrated that courts will impose significant penalties on licensees who do not comply on a systemic basis. The case demonstrated that generic statements about purpose will not be sufficient, and that more detailed enquiries and verification may be appropriate in respect of more vulnerable customers.”
In February, The Cash Store and Assistive Finance Australia were charged with $18.975 million in penalties by the Federal Court for their failure to comply with consumer lending laws, the largest civil penalty ever obtained by ASIC.