There is no evidence to suggest that ASIC’s responsible lending guidance has increased processing times and rejection rates for credit applications, according to commissioner Sean Hughes.
In his address to the Australian Retail Credit Association (ARCA), Sean Hughes, commissioner at the Australian Securities and Investments Commission (ASIC) has dismissed suggestions that the regulator’s responsible lending guidance (RG 209) has been the cause of slower turnaround times in the consumer lending space.
“There has also been a suggestion that ASIC’s guidance and consultation has caused increases to credit application processing times or rejection rates,” he said.
“Contrary to some anecdotal statements, the evidence and data do not point to ASIC’s guidance in RG 209 or our consultation to revise this guidance, as having caused increases in credit application processing times or rejection rates.”
Instead, the commissioner attributed slower processing times to heightened scrutiny on credit applications in the wake of the banking royal commission.
“We do accept that, following the commencement of the royal commission, lenders began to review their approach to responsible lending and to tighten standards,” he continued.
“[These] reviews, prompted by the royal commission and not by ASIC’s guidance – which, remember, has been unchanged since November 2014 – have resulted in them seeking more detailed information from borrowers and necessitated some systems upgrades and staff training.”
However, the commissioner claimed that heightened scrutiny has only affected processing times “at the margins”, citing data collected by ASIC from industry stakeholders.
According to Mr Hughes, data from the Australian Banking Association (ABA) recently revealed that, on average, approvals for mortgage applications in late 2018 took four days longer than they had in early 2018, but that by mid-2019, it had decreased to be just two days longer.
Further, the commissioner stated that over the course of ASIC’s current review of RG 209, it has found:
- one bank confirmed it has not experienced material changes to processing times, and approved between 80-85 per cent of applications; and
- two banks attributed any changes they experienced to shifts in demand for credit and changes in the bank’s own processes.
Mr Hughes also pointed to evidence produced by fintechs, including Tic:Toc Home Loans, which told ASIC that it has approved credit applications in less than an hour while remaining compliant with responsible lending guidance.
In addition to the above, Mr Hughes said that the ABA has informed ASIC that other reasons for an increase in approval times included:
- a new APRA reporting framework (inspection of record-keeping);
- an APRA review leading to internal changes to processes and procedures;
- satisfying new risk limits imposed on certain lending by APRA;
- AFCA decisions influencing interpretation of regulatory requirements; and
- reinterpretation by the ABA members of responsible lending requirements.
Nonetheless, ASIC is expected to publish its new responsible lending guidance before the end of the calendar year, after conducting two phases of consultation with industry stakeholders.