The corporate regulator has reiterated its view that lenders should be held accountable for breaches of responsible lending obligations, irrespective of whether the loan was broker-originated.
In its most recent Enforcement Outcomes report, which outlines the action the financial services regulator has taken over the first half of the calendar year, the Australian Securities and Investments Commission (ASIC) stressed that lenders should not offload blame to third parties when a loan is found to be in breach of responsible lending obligations.
ASIC made particular reference to instances of misconduct relating to ANZ’s former car finance business, Esanda, in which loans submitted through brokers, who supplied falsified documentation, were approved by lender.
On 28 February, the Federal Court ordered ANZ to pay a penalty of $5 million for breaches of the responsible lending provisions outlined in the National Credit Act.
In the civil penalty proceedings, the court found that in respect of 12 car loan applications from three brokers, ANZ had failed to take reasonable steps to verify the income of the consumer and had inappropriately relied solely on documents which appeared to be payslips.
“Credit providers must comply with their responsible lending obligations, irrespective of whether a loan application is submitted by a broker,” the regulator said.
ASIC added: “The obligation to verify a consumer’s income is important in ensuring that lenders and consumers do not enter into contracts that may be unsuitable.”
ASIC’s latest statement follows on from comments made by deputy chair Peter Kell in a speech delivered in July, where he criticised financial institutions for shifting blame when instances of wrongdoing are identified in their businesses.
Mr Kell said that under proposed reforms recently introduced by the government through the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018, designed to bolster the regulator’s enforcement and intervention powers, the “opportunity” to “shift blame” when service falls short would be stamped out.
“There will no longer be the opportunity for ‘product manufacturers’ to shift blame to ‘product sellers’ and vice versa, when something goes wrong, which has been an unfortunate feature of the financial services industry for too long,” Mr Kell said.
“The reform signals that responsibility for good consumer outcomes runs right across the supply chain.”
There has been increasing focus by the regulators on lender responsibility, with the financial services royal commission alleging that ANZ was “non-compliant with the National Credit Act, responsible lending obligations and with regulatory guides issued by ASIC” by not verifying “inconsistent” living expenses.
The major bank told the financial services royal commission that it is reliant on the validity of general expense claims provided by brokers when determining a borrower’s suitability for a home loan, to which counsel assisting Rowena Orr said: "I want to put to you that your processes, or your lack of processes in relation to the verification of a customer’s expenses, are non-compliant with the National Credit Act, responsible lending obligations and with this regulatory guide issued by ASIC.”
Summary of enforcement action
ASIC's Enforcement Outcomes report also revealed the details of ASIC's enforcement work in the six months to June 2018. According to the report,
- 32 per cent of ASIC's enforcement actions were for credit-related matters;
- 18 per cent involved dishonest conduct or misleading statements;
- 7 per cent involved misappropriation, theft, or fraud;
- 1 per cent related to unlicensed conduct; and
- 42 per cent involved other financial services misconduct
ASIC also noted that pending financial services matters before the court, as of 1 July, included:
- 3 criminal credit cases and 1 civil case;
- 11 criminal matters involving dishonest conduct or misleading statements, and 18 civil matters;
- 2 criminal matters involving misappropriation, theft, or fraud, and 10 civil matters; and
- 27 civil matters involving other financial services misconduct.
[Related: ASIC calls for an end to the blame game]