ASIC has updated its guidance for credit licensees on their responsible lending obligations.
The updated guidance reflects:
- a recent Federal Court decision that is relevant to all credit licensees regarding their responsible lending obligations
- changes to statutory restrictions on charges for small amount credit contracts, and
- clarification of existing guidance, and removal of some material that we consider to be repetitive or no longer necessary.
On 26 August 2014, the Federal Court handed down its first decision on the responsible lending obligations: ASIC v The Cash Store (in liquidation) [2014] FCA 926 (refer: 14-220MR).
The Federal Court ruled that The Cash Store Pty Ltd (in liquidation) and loan funder Assistive Finance Australia Pty Ltd had failed to comply with their responsible lending obligations in relation to their customers, the majority of whom were on low incomes or in receipt of Centrelink benefits.
The Federal Court's decision makes it clear credit licensees must, at a minimum, inquire about the consumer's current income and living expenses to comply with the responsible lending obligations. Further inquiries may be needed depending on the circumstances of the particular consumer.
ASIC has updated Regulatory Guide 209 Credit licensing: Responsible lending conduct (RG 209) to incorporate the general findings of the Federal Court on the responsible lending obligations for credit licensees.
We have also updated RG 209 to make it clear that credit licensees cannot rely solely on benchmark living expense figures rather than taking separate steps to inquire into borrowers’ actual living expenses.
Deputy Chairman Peter Kell said, 'The responsible lending obligations provide an important protection for consumers. It is vital that credit licensees regularly review their processes to ensure compliance with their obligations.'
The Australian Prudential Regulation Authority (APRA) has today also released final guidance for authorised deposit-taking institutions on sound risk management practices for residential mortgage lending. APRA's prudential practice guide APG 223 Residential mortgage lending can be found on its website at www.apra.gov.au. Credit providers should consider both sets of guidance when engaging in home lending.
Background
The Cash Store matter is listed for a penalty hearing on 15 December 2014.
More information on credit licensing and the obligations of people who engage in credit activities can be found on the ASIC website.
Consumers who want to check if an individual or business is licensed can search search ASIC’s registers.