ASIC has published updated guidance on the responsible lending obligations that are contained in the National Consumer Credit Protection Act 2019 (the National Credit Act).
Following an extensive consultation, ASIC has updated Regulatory Guide 209 (RG 209) to provide greater clarity and support to lenders and brokers in meeting their obligations. Importantly, ASIC has maintained principles-based guidance that supports flexibility for licensees.
The changes include:
- A stronger focus on the legislative purpose of the obligations—to reduce the incidence of consumers being encouraged to take on unsuitable levels of credit, and ensure licensees obtain sufficient reliable and up-to-date information about the consumer’s financial situation, requirements and objectives to enable them to assess whether a particular loan is unsuitable for the particular consumer.
- More guidance to illustrate where a licensee might undertake more, or less, detailed inquiries and verification steps based on different consumer circumstances and the type of credit that is being sought. The updated guidance includes new examples about a range of different credit products including large and longer-term loans, credit cards and personal loans, small amount loans and consumer leases and different kind of consumer circumstances – such as first home buyers, existing customers, strata corporations, high net worth and financially experienced consumers.
- More detailed guidance about how spending reductions may be considered as part of the licensee’s consideration of the consumer’s financial situation, requirements and objectives.
- More detailed guidance about the use of benchmarks as a way to check the plausibility of expenses, as well as additional guidance about the HEM benchmark.
- Clarity about more complex situations for some consumers – for example the different situations of consumers such as income from small business, casual employees, new employees, the gig economy, as well as joint and split liabilities and expenses.
ASIC has also included a section on the scope of responsible lending, explaining the areas that are not subject to responsible lending obligations – such as small business lending irrespective of the nature of the security used for the loan.
The National Credit Laws provide consumers with important protections when seeking credit directly from a lender or through a broker. ASIC’s revised guidance is intended to assist lenders and brokers to comply with their responsible lending obligations and ensure that they do not recommend or provide credit that is unsuitable.
ASIC Commissioner Sean Hughes said “ASIC conducted extensive consultation on this important issue. The public hearings and submissions highlighted the areas where industry sought clarification from ASIC. We have listened carefully to all stakeholders and addressed areas where we consider updated guidance would help. We hope that today’s guidance will assist industry to more confidently make responsible lending decisions and to facilitate good lending outcomes for consumers.”
The guidance has also been updated to reflect technological developments including open banking and digital data capture services. RG 209 notes the cost and ease of access to transaction information will be improved over time, which should improve lenders’ overall view of a consumer’s financial situation.
ASIC has also published its response to submissions made to Consultation Paper 309 and a tool to assist users of RG 209 to navigate the updated structure of the document.
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Background
Regulatory Guide 209 Credit licensing: Responsible lending conduct (RG 209) contains ASIC’s guidance on responsible lending for consumer credit. RG 209 was issued in 2010 and last revised in November 2014. It reflects ASIC’s view of the current state of the law.
ASIC’s decision to update RG 209 followed a number of developments since the guidance was last updated in late 2014. These developments have included:
- ASIC regulatory and enforcement actions, including court decisions
- ASIC thematic reviews on various parts of the industry such as interest-only loans
- the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
- recent and upcoming initiatives such as comprehensive credit reporting and open banking, and
- changes in technology.
ASIC’s consultation process
In February 2019, ASIC released a Consultation Paper on updating its guidance. CP 309 contained a number of proposals for changes to be considered during this update. Written submissions were due on 20 May 2019. ASIC received 74 submissions and published all 64 non-confidential submission on its website.
As part of the consultation process ASIC held public hearings in August 2019, in Sydney and Melbourne, to test particular issues raised in submissions. Transcripts are available on the ASIC website.
ASIC also held five roundtables in late October 2019, with representatives from consumer groups, non-bank and ADI lenders, brokers, small amount credit contract providers and consumer lessors.