Earlier this week, ASIC published its amended guidance on responsible lending obligations – the first update to be made in nearly a decade.
The newly-released Regulatory Guide RG 209 Credit licensing: Responsible lending conduct has retained ASIC’s principles-based approach, making it explicit: “As a credit licensee, you must decide how you will meet the responsible lending obligations.”
“The legislation allows licensees flexibility to determine what is appropriate in individual circumstances [because] the obligations are not static—what is ‘reasonable’ will be affected by the broader professional and regulatory environment in which you operate.
“For example, legislative developments (e.g. open banking and comprehensive credit reporting) and other developments and innovations adopted by the credit industry will affect the measures you could reasonably be expected to undertake,” the guide explains.
However, the regulator has attempted to provide some parameters and offer tangible actions that may be part of making an informed assessment of suitability.
One recommendation made, in line with much of the discussion around best interests duty, suggests brokers introduce a clear written copy of their assessment and decision into their existing processes.
“If you are asked by the consumer for a written copy of the assessment that a credit product is ‘not unsuitable’, you must give them a copy of the assessment free of charge,” reads the guide.
“This means that you need to keep a record of the assessment in a form that allows you to provide the assessment to the consumer promptly (within the prescribed time limits) and in writing.”
Further, ASIC has said it may also ask for such a copy of the assessment when conducting its own monitoring and surveillance activities, cementing the prudence of introducing such a measure.
Peter White, MD of the FBAA, has cautiously welcomed RG209, but also acknowledges there’s a “fair bit to digest” in the 96 pages of guidance.
“Compliance obligations will always continue to be reviewed and these clarifications are made to adapt with the ever-changing world of consumer protection,” he said.
“It is important to understand that these updates aren’t changes to the law, but further guidance on the current law. If there was any ambiguity around lending guideline previously, then the RG 209 update should give more clarity.”
To White, the impact of the new guide seems most likely to be felt in how lenders respond.
“The most important aspect to watch going forward will be how the lenders interpret these updates,” he said.
“We trust this doesn’t come as an excuse for banks to tighten credit more than they have already, as I don’t think the government would want to see further tightening of credit in the residential sector, or the business sector for that matter.”
The MFAA welcomed the release of the updated RG 209 as well, with CEO Mike Felton also keeping his eyes on the lenders moving forward.
“The mortgage broking industry is reliant on referral business and the customer outcomes it produces and we welcome the enhanced guidance as we seek to continually improve lending outcomes for consumers," said Felton.
“We are hopeful that the release of the amended guidance will provide some much-needed certainty and greater consistency in the way lenders are treating both the assessment of expenses and the use of HEM, which in the recent past has created complexity and an extension of approval turnaround times."
The ABA has dubbed the updated guidance an "important milestone" in clarifying responsible lending obligations for banks.
CEO Anna Bligh said, “The industry is pleased to see ASIC has maintained a principles-based approach to lending, which as an industry we have called for, and to ensure banks are able to fulfil their obligations without the process becoming too restrictive for customers.
"Our member banks take their responsible lending obligations seriously as they seek to comply with the law and meet customer demand to access timely and appropriate credit.
“This is an important document for the industry to guide each bank’s approach to responsible lending which we will now study closely to assess any impacts it may have on borrowing for customers," said Bligh.
The ABA also specifically welcomed greater clarity in certain areas, such as where it is difficult to determine income from certain customers, such as small business owners and gig economy workers.