ASIC Commissioner Sean Hughes has sought to clarify why the regulator is updating its responsible lending guidelines through addressing the “myths that need busting” and “exaggerated and inaccurate criticisms” that have been circulating.
Speaking at the ARCA National Conference on the Gold Coast, Hughes explained the changes to the responsible lending framework are intended to both clarify the existing guidance as well as provide additional guidance.
Why update the guidance?
Since the introduction of responsible lending laws, ASIC has regularly reviewed industry practices and sought to ensure clear communication and application of the law. However, that said, Hughes highlighted the importance of the word ‘guidance’.
“It is critical everyone is clear that our guidance does not, and the revised guidance will not, create new obligations. Simply because it cannot do that,” said Hughes.
“Our regulatory guides are just that – guidance – about approaches that licensees can adopt to reduce the risk that they fail to comply with the responsible lending laws.”
Hughes cited the ‘Wagyu and Shiraz’ Westpac case as an example of ASIC’s commitment to clarifying the laws for lenders, defending the decision to appeal the judgement despite the criticism it brought forth.
“Our objective in appealing this decision is, in fact, to clarify the application of the law. And we believe that doing so is in the best interests of both consumers and lenders,” he said.
“It is an important part of ASIC’s mandate to clarify the law where there is uncertainty, and thereby support and guide industry to understand their obligations.
“Put simply, we believe that the judgment left it too unclear what steps are required of a lender. We are seeking clarity by appealing.”
Misconceptions about responsible lending
According to Hughes, the “myths and exaggerated claims” about the supposed effects of the responsible lending laws are not supported by the facts of the law or economic data.
He denied claims that small business lending is negatively affected by the responsible lending obligations, explaining the obligations administered by ASIC apply to credit provided to individuals; as such, a loan to a company for any purpose is not subject to the responsible lending obligations.
Further, he rejected that ASIC’s guidance and consultation has caused increases to credit application processing times or rejection rates, saying that delays could more likely be attributed to lenders tightening their standards after the royal commission.
“Finally, there has been a suggestion that responsible lending has had a negative effect on economic growth,” said Hughes.
“We do not accept this. The evidence and data available to ASIC do not suggest that the decision to update our guidance has contributed to the current state of the economy by limiting access to credit.”
“Instead, the main reason for slower credit growth has been a decline in the demand for credit. Statements made during ASIC’s public hearings, other information we have collected from industry, and recently published economic statistics all support this view.”