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11-265MR ASIC seeks consistency in micro lenders’ responsible lending practices
The findings of the review, which involved 19 micro lenders and looked at 168 loans between 1 July and 31 December 2010, are set out in ASIC’s Report 264 Review of micro lenders responsible lending conduct and disclosure obligations (REP 264), released today.
ASIC Commissioner Peter Kell said, ‘ASIC’s review was deliberately undertaken in the early months of the new National Consumer Credit regime because of previous concerns that had been raised concerning practices in the micro lending industry. As these lenders generally deal with consumers who have fewer financial resources, it is especially important that they lend responsibly.’
ASIC’s review found that while lenders have introduced new procedures to meet the responsible lending requirements, they are failing to do so consistently on all loans. Problems included instances of lenders not recording the actual purpose of the loan, undertaking very limited verification of a consumer’s financial circumstances, and not taking steps to clarify conflicting information in loan applications. Examples included files where:
the expenses listed in the application appeared to be understated relative to very basic living costs;
the consumers stated expenses together with the required repayments on the loan, exceeded the consumers stated income; or
the bank statement provided with the application, showed the consumer’s account was overdrawn by the end of each pay cycle.
Mr Kell said the review provided an opportunity for micro lenders to review their current practices.
‘While micro lenders are clearly adapting to the new regime, there is still work to be done. Our key message for industry is that you now know what the requirements are and how they work - it’s time to get consistent in your business operations.’
‘ASIC will take up issues identified with particular lenders as well as working with the industry as a whole to improve practice’, said Mr Kell.
‘We’ll work with lenders who are making genuine efforts to comply with the law but will take a tougher approach where we encounter deliberate breaches, serious misconduct or significant risk of consumer detriment.’
The National Consumer Credit regime has also required micro lenders to meet the requirements to become licensed, including having experienced responsible managers, developing a compliance plan, providing adequate staff training, introducing internal dispute resolution processes, and joining an External Dispute Resolution scheme.
The National Consumer Credit Protection Act 2009 commenced in July 2010, imposing responsible lending obligations on credit providers to:
make reasonable inquiries into a consumer’s credit requirements and objectives;
make reasonable inquiries into a consumer’s financial situation;
take reasonable steps to verify a consumer’s financial situation; and
only provide loans where they have done an assessment and determined that the consumer will be able to meet their obligations under the loan without substantial hardship.
The holder of an Australian credit licence must keep a record of all material that forms the basis of an assessment of whether a credit contract will be unsuitable for a consumer. The material must be in a form that will enable the credit licensee to give the consumer a written copy of the assessment if requested. There are significant civil and criminal penalties that apply to these responsible lending obligations.
In February 2010, ASIC issued Regulatory Guide 209 Credit licensing: Responsible lending conduct (RG 209), which set out its expectations concerning responsible lending obligations.
On 17 November 2011, ASIC reported on its review of mortgage brokers’ providing credit assistance for home loans.. ASIC intends to consider the findings from these reviews and liaise with relevant stakeholders to determine what further guidance, if any, may be required in RG 209.