ASIC has published an updated RG 209 setting out its views on what the responsible lending obligations in Chapter 3 of the National Consumer Credit Protection Act 2009 (National Credit Act) require, and steps credit licensees can take to minimise the risk of non-compliance with these obligations.
ASIC has also included a section on the scope of responsible lending, explaining the areas that are not subject to responsible lending obligations – such as small business lending irrespective of the nature of the security used for the loan.
ASIC has provided a table of changes made.
ASIC’s responses to submissions are provided in Report 643.
The updated RG 209 continues the existing principles-based approach but makes changes to ASIC’s guidance to more clearly articulate the principles that it considers credit licensees should apply when determining how to comply with their obligations, and provide more illustrative examples of how those principles should be applied in individual circumstances.
It gives more examples of information credit licensees should obtain from borrowers and the use of benchmarks.
For example ASIC considers that while borrower’s transaction statements give a useful overview of their affairs a licensee is not expected to consider, and would not be taken to be aware of, all expenditure at a transaction level.
ASIC says that licensees should observe the following principles when determining how to comply with their responsible lending obligations, including when determining what inquiries and verification steps are reasonable:
• the licensee should have regard to what the obligation is intended to achieve and what consumer harm it is intended to address;
• the licensee should have regard to the circumstances of the individual consumer the licensee is dealing with;
• the licensee should have regard to whether the credit product involves a higher risk of harm to the consumer if it is unsuitable; and
• the obligations are not static—what is ‘reasonable’ will be affected by the broader professional and regulatory environment in which licensees operate.
For example, legislative developments (e.g. open banking and comprehensive credit reporting) and other developments and innovations adopted by industry will affect the measures a licensee could reasonably be expected to undertake.
ASIC considers that its guidance should have the effect that licensees are less likely to compete on the amount of information they have regard to when assessing an application. That is, a consumer who applies for a particular type of product should expect that a similar level of information will be considered regardless of who they choose to deal with.
ASIC says the way the information is gathered may depend on the processes and capabilities of the licensee and whether the consumer has had previous engagement with it, so there should continue to be competition on service delivery and consumer experience.
What should you do?
Although ASIC’s appeal against the decision in ASIC v Westpac has not been heard yet it is important to review ASIC’s updated RG 209 against your current procedures and any changes you are considering.