On 18 July ASIC released Report 358 on responsible lending obligations applying to debt consolidation.

ASIC’s review found that credit assistance providers need to improve their procedures and record keeping in relation to debt consolidation to be able to adequately demonstrate they are complying with their responsible lending obligations under the consumer credit regime.

ASIC found a wide variance in the quality of record keeping.  Importantly, ASIC found that only a few credit assistance providers were appropriately recording details on their files.

ASIC considered the following should be recorded.

  • copies of the loan applications and supporting documents;
  • record of active steps taken by the broker to assess whether the loan was not unsuitable, eg, assessing whether the consumer could comply with the contract without substantial hardship; and
  • records of steps taken to verify the consumer’s financial situation eg multiple sources of income verification on the file.

ASIC noted poor record keeping meant it could not make a comparison between the consumer’s pre-consolidation and post-consolidation position.  In these circumstances, a broker involved in debt consolidation will be at risk of being unable to demonstrate compliance with its responsible lending obligations.

Recommendations

ASIC encourages brokers to review their processes and procedures to ensure they are able to demonstrate that they are meeting their responsible lending obligations.  ASIC will be more likely to take enforcement action for failure to comply now that the credit providers have had time to implement their practices and procedures.  Non-compliance can lead to significant civil and criminal penalties.