Summary
The Australian Securities and Investments Commission (ASIC) has released Consultation Paper 309 – Update to RG 209 (Consultation Paper).
The Consultation Paper sets out proposed changes to Regulatory Guide 209 – Credit licensing: Responsible lending conduct (Regulatory Guide). The Regulatory Guide sets out ASIC’s approach to the responsible lending provisions found in Chapter 3 of the National Consumer Credit Protection Act 2009. The responsible lending provisions apply to persons that engage in regulated credit activities.
ASIC has invited public consultation on (a) its general approach to providing guidance in the Regulatory Guide, (b) what current guidance may need updating or clarifying and (c) whether it should provide additional guidance on specific issues.
ASIC’s general approach to providing guidance
The Consultation Paper sets out ASIC’s general approach to providing the guidance that is contained in the Regulatory Guide.
The Regulatory Guide notes that the responsible lending obligation to make reasonable inquiries and take reasonable steps to verify information provided is scalable, and that what a Australian financial services licensee (a licensee) needs to do to meet these obligations in relation to a particular consumer will vary depending on the circumstances.
That is, licensees are able to tailor their responsible lending processes in a way that is appropriate for their business and consumers.
ASIC has confirmed that it intends to maintain its current position and will not set minimum standards to these scalable obligations. Instead, ASIC proposes updates to:
- Reflect the findings of its thematic and enforcement work in respect of the obligations, as well as clarifying areas which potentially remain a source of uncertainty; and
- Address whether readily identifiable circumstances of the consumer could provide an indication that (a) the consumer may be operating at the margins of their disposable income; and (b) additional steps to confirm that the consumer has not underestimated their fixed/recurring expenses would be reasonable.
Guidance that may need updating or clarifying
ASIC acknowledges that certain guidance contained in the Regulatory Guide does not accommodate recent developments and contemporary best practice.
ASIC proposes updates or clarification to:
- The kinds of information that are available to verify different aspects of a consumer’s financial situation, and ASIC’s views on whether licensees should use those different sources of information;
- The role of expense benchmarks in the process for verifying a consumer’s financial situation; and
- What licensees should take into account when inquiring about, and assessing whether a credit product meets, a consumer’s requirements and objectives.
ASIC has included a comprehensive list of the kinds of information that are available to verify a consumer’s financial situation. This list is contained in Appendix 1 to the Consultation Paper.
ASIC’s proposal to update or clarify the role of expense benchmarks has in part been made in the context of comments made in the Final Report of the Financial Services Royal Commission that the measure should not, and cannot, be used as a substitute for inquiries or verification of a consumer’s income and expenses. ASIC intends to clarify its position in respect of expense benchmarks so that licensees are aware that:
- Expense benchmarks can be useful as a tool to test the plausibility of consumer-provided information, but do not give a positive confirmation;
- Reliance on expense benchmarks to test information provided may involve a higher risk that the information is not accurate, particularly with some expenses;
- Whether reference to a expense benchmark figure is a reasonable step for the licensee to have taken will depend on the particular circumstances; and
- Licensees should take steps to limit the risk that the expense figure used understates the consumer’s actual expenses.
Additional guidance on specific issues
ASIC acknowledges that the Regulatory Guide does not cover all aspects relevant to a licensee’s compliance with the responsible lending obligations.
ASIC proposes the inclusion of additional guidance on the following specific issues:
- Areas where the responsible lending obligations do not apply (e.g. small business lending);
- The role of the responsible lending obligations and in particular the obligation to take reasonable steps to verify information provided about a consumer’s financial situation, in mitigating risks involved in loan fraud;
- How negative repayment history information may be used, and the effect this may have on the kinds of inquiries that should be made with the consumer;
- Good practices for maintaining records that demonstrate compliance with the responsible lending obligations; and
- The purpose and content of the written assessment.
Submissions
The consultation period is open and submissions can be made during the period up to 20 May 2019.
HWL Ebsworth has a specialised team of experts across all aspects of the subject matter identified in the Consultation Paper. To contact one of our team please click below.
This article was written by Michael Anastas, Partner and Byron David, Solicitor.
