The Australian Securities and Investments Commission (ASIC), is an independent Australian government entity that enforces and regulates the corporate and financial services laws for the protection of Australian consumers, investors and creditors. ASIC bears the authority under the National Credit Act as well as the ASIC Act to conduct public hearings for exercising or performing its powers and functions to develop its regulatory guidance which is based on responsible lending obligations.
The watchdog needs to update the rules previously laid down related to regulatory and enforcement actions, that also includes the court decisions. ASIC thematic reviews are on interest-only loans, the policies related to Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, current and upcoming initiatives and changes in technology.
The National Credit Act
ASIC planned to make a revision to the important lending rules that are controversial in nature by the end of year end after it had losing a test case against Westpac Banking Corporation (ASX: WBC), which is part of Australia’s big four banks, that it breached responsible lending laws more than 250,000 times meant for mortgage borrowers.
WBC’s 6-month stock return (Source: ASX)
As a result, ASIC has come up with a modified guidance based on responsible lending obligations (RG 209) that also include the National Credit Act. This is expected to provide better transparency and underpin both lenders as well as brokers in meeting their respective obligations.
Further, ASIC has maintained its principles-based guidance which will help the licensees the flexibility and is planning to make an appeal against the Federal Court judgment as it had to go ahead with public hearings that involve the big four banks on developing regulatory guidance on responsible lending obligations.
Additionally, ASIC reviewed the RG 2019 to ensure that holders of an Aussie credit license are aware of ASIC’s prospects to comply with the lending obligations. For reviewing RG 2019, ASIC had asked a series of questions about specific matters- asked the stakeholders if any more issues to be considered which is not take off previously and was also considering whether to give the opportunity to key stakeholders to speak to the Commission at public hearings apart from doing written submissions.
Highlights of the ASIC's lending guidance report
- Strong focus on legislation: ASIC in its updated guidance on the responsible lending obligations has given strong focus on legislation. This is been done for the reduction of a situation where the consumers are encouraged to take the credit that they are not able to repay, and ensure that licensees have all the required, sufficient, correct and updated information about the consumer’s financial situation along with the requirements and the need, so they are able to understand whether a particular loan is suitable or not for the particular consumer.
- Detailed inquiries and verification steps by licensee: ASIC has given more guidance to depict situations under which the licensee will able to undertake more, or less, required detailed inquiries and verification steps. This will depend upon the different consumer situations and the type of credit that they are planning to take and the way they will repay it. The updated guidance has also included new multiple different credit products that are required. The products will range from big and longer-term loans, credit cards and personal loans, small amount loans and consumer leases and also encompass different types of situations where the consumer is required to take credit. These includes the first-time home buyers, the existing customers that have already taken the credits, strata corporations, high net worth and financially sound consumers.
- How reductions in spending could be a part of the licensee’s consideration: ASIC in the updated guidance on the responsible lending obligations has included the detailed guidance about how the reductions in spending could be a part of the licensee’s consideration to access the consumer’s financial condition, its requirements and their targets.
- How to use benchmarks: ASIC has laid detailed guidance about how to use benchmarks for checking the need of the expenses of the consumers, and has provided an additional guidance about the Household Expenditure Measure (HEM) benchmark, which is a tool used by the banks for the determination of conditions of the consumer (whether they are able to pay the loan or not).
- Access complex situations for some consumers: ASIC in the updated guidance on the responsible lending obligations has given clarity in accessing the complex situations faced by some consumers. This includes situations like the consumers getting income from small business, casual employees, new employees, the labour market where the consumers get income from short-term contracts or freelance work against the permanent jobs, along with joint and split liabilities and expenses.
- Technological Developments: ASIC’s updated guidance includes technological developments that involve digital data capture services as well as open banking services. The way and cost of accessing the transaction data is likely to improve with time, which will consequently cause an improvement of lenders’ overall view of the consumer’s financial position.
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