ASIC sounds off on living expenses controversy

by Julia Corderoy03 Dec 2015
Brokers and lenders will not be required to obtain bank statements and credit card statements to verify living expenses, a senior ASIC executive has confirmed.

Speaking to Australian Broker, ASIC senior executive leader - deposit takers, credit & insurers, Michael Saadat, said that a recent review conducted by ASIC revealed that in some instances, reasonable enquires were not made in regards to a consumer’s living expenses. 

“One of the key things that we saw in our review of interest-only loans, and also working with some lenders recently, was that some lenders weren’t making enquiries into a consumer’s expenses. That was the first concern we had, that those enquiries weren’t happening,” Saadat said.

However, Saadat confirmed that this does not mean brokers and lenders will be required to obtain bank statements and credit card statements to verify each consumer’s living expenses. According to Saadat, ASIC accepts benchmarks as a reasonable method of verifying living expenses, however, the regulator has suggested brokers and lenders use scaled benchmarks. 

“In terms of what is then required to verify a consumer’s expenses, what we say in RG209 is that you can use benchmarks as a form of verification and we say that similarly in the interest-only loans report – that benchmarks are a form of varication that you can use. 

“We do, though, also say in the interest-only report that using a scaled benchmark – where the benchmark reflects different income levels – is more appropriate. All the lenders in the review that we conducted – all 11 lenders – agreed that they would be using scaled expense benchmarks to verify expenses as a minimum.”

But where additional enquiries are required in some cases, such as obtaining bank statements and credit card statements, Saadat says it is important that brokers and lenders document it in the consumer’s file. 

“We are not saying that brokers need to obtain bank statements for every customer and we are not expecting brokers to go through bank statements line by line to work out exactly how much consumers are spending down to the dollar. But it is important that in the right circumstances that the additional steps are taken but also very importantly that the outcome of those additional steps are recorded on the file. That is one thing that we have noticed which is a bit of a weakness," Saadat told Australian Broker. 

“Where lenders and brokers have made enquiries into a consumer’s requirements and objectives, the outcome of those enquiries aren’t always recorded on the file. That is a risk because it means that the lender and the broker may have trouble demonstrating that they have made those enquiries and that they have met those obligations if there is nothing on the file to show that they have done it.”