The MFAA and the FBAA have called on ASIC to provide the mortgage industry with greater guidance surrounding expense verification, but have urged the regulator not to adopt a “prescriptive approach” to responsible lending.
The Australian Securities and Investments Commission (ASIC) has published submissions from its first round of consultation regarding its proposal to update its responsible lending guidelines (RG 209).
In February, ASIC stated that it considered it “timely” to review and update its guidance (in place since 2010) in light of its regulatory and enforcement work since 2011, changes in technology, and the release of the banking royal commission’s final report.
ASIC added that its review of RG 209 will consider whether the guidance “remains effective” and will seek 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”.
In submissions to ASIC, the Mortgage & Finance Association of Australia (MFAA) and the Finance Brokers Association of Australia (FBAA) called for greater clarification surrounding guidelines that relate to the verification of a borrower’s expenses (which was a key point of scrutiny during the royal commission).
The MFAA encouraged ASIC to provide “as much guidance as possible”, and lamented the lack of uniformity in the application of current guidelines.
“An unfortunate side effect of these changes is that the requirements of individual lenders have changed from being reasonably consistent to being quite diverse,” the MFAA noted.
“This is causing significant cost, confusion and delay for consumers as well as for brokers.
“This is not a good consumer outcome because it has become very difficult for brokers to be familiar with the requirements of multiple lenders whose credit policies vary considerably.”
The industry association claimed that a disparity in the credit policies imposed by lenders may limit borrower choice by “resulting in brokers dealing with a smaller panel of lenders”.
“It is important that RG 209 provides as much guidance as possible, specifically dealing with the five most common finance types (home loans, residential investment loans, car loans, credit cards and personal loans – excluding small amount credit contracts) to assist consistency in consumer accessibility to these products while supporting the spread of credit access across the market through the enhanced clarity of regulatory expectation,” the MFAA added.
“We envisage that within each of these five loan types, RG 209 should specify ‘base’ inquiries and verifications because current industry standards are often quite similar across the product range.”
The FBAA agreed, calling for “some additional guidance to be provided around expense verification”, but has warned against a move to a more prescriptive approach to responsible lending.
“Responsible lending is principles-based and intended to be flexible, adaptable and technology neutral,” the FBAA stated.
“There are genuine risks associated with guidance becoming too prescriptive. It would undermine the intentions of the responsible lending framework, stifle productivity and innovation and impede consumer access to regulated finance.”
Public hearing to be held in August
Last week, ASIC confirmed that it will host a new set of public hearings to further discuss its proposed changes to its responsible lending guidelines.
The corporate regulator has now confirmed that the hearings will take place in August and will be held in both Sydney and Melbourne.
ASIC stated that the hearings, which will be live streamed online, are aimed at “testing the views of stakeholders and providing greater understanding of business operations”.
“The responsible provision of credit is critical to the Australian economy,” ASIC commissioner Sean Hughes said.
“We are taking this opportunity to test views to make sure our guidance remains relevant, clear and timely.
“Public hearings will provide a robust and transparent way to air issues and views raised in written submissions.”
The stakeholders invited to participate in the hearings will be drawn from the groups or individuals who provided a written submission to ASIC on the responsible lending guidance.
[Related: ASIC to host new set of public hearings]