Banks have 'no excuse for not challenging expenses'

However, Michael Saadat, ASIC’s senior executive leader for deposit takers, credit & insurers, has since revealed that the body disagreed with some of the report's findings.

Speaking at a hearing by the House of Representatives Standing Committee on Economics last week, Mr Saadat said: “We are aware of that UBS report… I think where we would disagree with that UBS report is in relation to where things stand today as distinct from where they possibly were many years ago. We think things have improved significantly in terms of responsible lending. We think there's still more work to be done, and we've got a number of reviews underway at the moment that are examining industry and their compliance with their obligations. But we do think things have improved.”

Delving deeper, Mr Saadat noted that one of the observations in the update was that consumers said they “did not feel that loan underwriting standards had changed over the past couple of years and it wasn't any harder to get a loan”. 

However, Mr Saadat called into question the weight of this response, arguing that “for many consumers the additional work and additional steps that banks and other lenders are taking to verify someone's financial situation won't be apparent to them”.

He continued: “So, we think consumers are probably not the best judge of what banks are doing behind the scenes to make sure borrowers can afford the loans they're being provided with.”

Banks have 'no excuse for not challenging expenses'

The ASIC senior executive leader added that ASIC had been doing “a lot of work on responsible lending and loan fraud over many years” and was “still doing a range of work”.

“We are separately looking at the issue of loan fraud as well,” Mr Saadat said. 

“ASIC gets reports of loan fraud from a number of sources, and we've taken action against almost 100 credit representatives in the market for loan fraud, and we continue to focus on that. But we've got a project underway at the moment that is looking at loan fraud more systematically to identify how we might be able to address loan fraud in a way that doesn't necessarily require us to take on every single individual who's alleged to have engaged in loan fraud and look at more systematic solutions to that issue.”

Picking up on this, Mr Medcraft highlighted that the regulator was taking to court some banks over their use of indexes rather than “proper expenses”, thus suggesting that inaccurate information (at least when it comes to expenses) should be caught by lenders.

He continued: “I do think the message to banks is that, frankly, there's no reason they shouldn't challenge the estimates. Because when you think about it, particularly if your bank account is with that bank, they have a pretty good idea of what your expenses are from the data they have. Even if they don't have your account, they have access to big data.”

Mr Medcraft continued: “They know pretty well how much, in a particular locality, somebody's cost of living is, roughly. So, there's really no excuse for not challenging it if the expenses don't look at least reasonable for the area they're living in.”

[Related: 'I'd do it': ASIC chairman would place consumers in larger loans]