Updated guidance and examples of responsible lending for RG 209 will be released by ASIC “before the end of the year” to demonstrate what the regulator considers important when gathering loan information.
In February, ASIC issued a consultation paper to update its guidance on responsible lending given the changes to its regulatory and enforcement work since 2011, changes in technology, and the release of the banking royal commission’s final report.
ASIC’s review of the guidance (RG 209) aims to identify changes and additions to the guidance that “may help holders of an Australian credit licence to understand ASIC’s expectations for complying with the responsible lending obligations”.
Following on from consultation with industry, including via a range of public hearings, the financial services regulator has revealed that it will include examples of what it considers important when gathering loan information.
Speaking at the FBAA Challenge the Future conference in the Gold Coast on Friday (8 November), Richard McMahon, a senior manager in the credit, retail banking and payments division at the Australian Securities and Investments Commission (ASIC) said that he believed the consultation process had been “successful” with “some very positive feedback about the hearings”.
He continued: “In terms of what what we took away from those hearings, there were statements from lenders that reflected the state of the market as to the availability of consumer credit and issues of around issues around demand.
“We also picked up that more clarity and guidance was required and that lenders are applying technology and data analytics that can lower the cost and increase the speed and accuracy of lending decisions.”
Mr McMahon told FBAA members that the consultation had resulted in “some good discussions about belt tightening and areas where that can legitimately occur, but also where post-loan expense reduction isn’t an option for some borrowers, where all their expenditure is on a non-discretionary basic items”.
The ASIC senior manager went on to confirm that ASIC is preparing its response to its consultation paper “with a view to updating RG 209 to before the end of the year”.
Speaking on Friday (8 November), Mr McMahon said: “We’re drafting the guidance now. And we held roundtables with stakeholders just last week, including the FBAA.”
Noting that the final content of the RG 209 guidance has not yet been signed off, Mr McMahon added that “what we’re thinking about now is continuing to provide principles-based guidance with content and structure changes, to give more clarity about what ASIC considers important, and to give you some examples”.
He clarified: “This could include a more expressed description of the principles [that] licensees should consider when developing their compliance processes, a stronger focus on the purpose of the obligations and what licensees should seek to achieve, and a shifting of the focus away from the term scalability to more direct guidance about what circumstances licensees should consider when deciding what information gathering steps are reasonable."
There have been increasing calls for ASIC to provide more clarity around responsible lending requirements, with federal Treasurer Josh Frydenberg warning in September that “common sense dictates that a sensible balance needs to be struck because an unduly restrictive application of these obligations can do as much harm as an overly lax one.”
“Clearly, the risk that the provision of credit may cause substantial hardship to some should not result in a significantly reduced ability to access credit by the vast majority of consumers.
“It is in everyone’s interest that the aspirations of hard-working families are not collateral damage in this regulatory process,” he said.
Several industry representatives have previously warned that hazy guidelines around responsible lending will cause ongoing issues should there not be clearer standards set.
Among the requested reforms to RG 209 was a consideration of changes in a borrower’s spending behaviour when conducting a serviceability assessment for loan application.
In its submission to ASIC, Westpac – which is currently engaged in a Federal Court dispute with the regulator over its use of the Household Expenditure Measure – called for greater flexibility in the assessment of a borrower’s living expenses, claiming that responsible lending guidance should take into consideration a borrower’s willingness to adapt to changes in their financial position.
“Adopting a modest lifestyle for a period of time in order to acquire real property has been the means by which many Australians have secured long-term financial security,” Westpac stated.
“Experience shows that many customers are prepared to, and do actually, make lifestyle adjustments after acquiring a home and can then service their home loan obligations without substantial hardship.”
Speaking of the Westpac case, Mr McMahon said that the case was taken “in part to [address] a need for the judicial clarification and [because] part of our role is to test the law".
“The obligation to assess loan applications builds on the requirement for lenders to make inquiries about a borrower's financial situation and capacity to service a loan and to verify the information the borrower was provided," he added, reiterating that ASIC has decided to appeal the Westpac decision to the federal court.
[Related: Big 4 expected to demand clarity from ASIC]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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