Payday lending probe reveals responsible lending obligations not sufficient

by Julia Corderoy31 Dec 2015

A Government-led review into small amount credit contracts (SACCs) has declared that responsible lending obligations concerning SACCs are not sufficient.

In August, the Government announced a review of the SACC laws contained in the National Consumer Credit Protection Act 2009 (NCCP). According to the review’s interim report, released this month, complaints about responsible lending make up 18.4% of all complaints about SACC lenders received by the Credit and Investment Ombudsman (CIO). This is more than three times the number of responsible lending complaints received about providers in other sectors.

In 2013, specific responsible lending obligations for SACCs were introduced requiring lenders to obtain and consider 90 days of bank statements. However, in its submission to the Government's review ASIC said this requirement is not being implemented in many cases. 

“While evidence appears to suggest that SACC providers collect 90 days of bank statements, it is less clear that they are being fully considered when assessing a borrower’s capacity to repay the SACC,” the review noted, referring to ASIC's submission.

As such, the review panel has suggested that ASIC enforcement of the responsible lending practices of SACC providers “should be a priority”.

However, in its submission to the review, the CIO argued that reliance on responsible lending obligations alone is not sufficient. According to the CIO, it can be difficult to understand and comply with the responsible lending obligations as they are abstract and highly principle-based.

“[i]t is the observation of CIO that the lending staff of SACC lenders appear to have difficulty with the concept...[T]he training material and operational guidance manuals of some SACC lenders that CIO has seen during its investigations do not appear to either address this issue adequately or do so in inappropriate ways.”

The Government is now inviting submissions addressing the observations made in its interim report. Submissions close on 22 January.