While the National Consumer Credit Protection Bill has specific responsible lending obligations in terms of (unsuitability) assessment and disclosure (provision of a credit guide) which will require the development of policies and procedures and the training of staff before 1 January 2011, the impact of responsible lending will ultimately be more than procedural.
It will be a conduct obligation under the Australian Credit License held by a credit provider on which a credit provider must report compliance annually.
A significant breach could result in a fine or even loss of the licence to provide consumer credit.
[UPDATE 24 July: Note also that section 133 also imposes a maximum 2 years imprisonment for breaching the prohibition on entering, or increasing the credit limit of, unsuitable credit contracts in addition to a monetary penalty.]
The Mutual Banking Code of Practice contains sections on responsible lending and credit limit increase offers as follows:
6. Responsible lending practices
(6.1) We will always act as a responsible lender.
(6.2) We will base our lending decisions, including decisions to extend existing credit facilities, on a careful and prudent assessment of your financial position. We will periodically review our credit assessment procedures and criteria for the products we issue.
(6.3) We will generally only lend amounts to you that we believe, on the information available to us, you can reasonably afford to repay. However, different criteria will apply in the case of some products, such as bridging finance arrangements and reverse mortgage loans (if we offer these).
(6.4) We expect you to provide honest and accurate information to us when applying for a loan or the extension of a credit facility. However, where it is prudent to do so, we will also undertake our own independent checks.
(6.5) We will promote the responsible use of credit to our members and customers using a range of approaches.
7. Credit limit increase offers
(7.1) If we issue a credit card or other revolving credit facility, we will act responsibly in setting and increasing the amount of credit we make available to you. We will not send you an unsolicited offer to increase your credit limit if you have a recent poor repayment history, or we are aware of other circumstances that make it imprudent for us to extend further credit to you.
(7.2) We will ensure any unsolicited offer we make to you to increase your credit limit on a credit card or other revolving credit facility that we issue includes information on:
• the new minimum payment required
• options for lowering existing or new credit limits
• not accepting the offer if you: cannot afford further credit; you are currently having difficulties meeting your repayments; or your financial circumstances are likely to deteriorate in the near future, and
• how to tell us if you do not wish to receive offers to increase your credit limit in the future.
If the Bill is passed, the responsible lending provisions will prescribe specific obligations in respect of credit assessments and verification of information.