In the last 12 months we have seen ASIC target the responsible lending practices of a broad spectrum of lenders, from the fringe players to the big banks. Their message is clear – you must change your practices to address our concerns or we will take action.
Going forward we predict that ASIC will conduct a further review of regulated margin loans and consumer loans by applying the principles set out in Report 445 and updated Regulatory Guide 209 (RG 209) and that ASIC will take action against any lender that has not implemented the necessary changes.
ASIC’s warning to lenders
ASIC has aggressively pursued the smaller players over their responsible lending practices, ultimately obtaining nearly $19 million in penalties (the largest civil penalty ever obtained by ASIC) against two “easy targets” that had demonstrated significant non-compliance, the Cash Store and Assistive Finance Australia.
The Cash Store case resulted in an update to ASIC’s guidance on responsible lending requirements in RG 209 in November 2014. The message from this update was clear. ASIC does not consider that benchmarks such as HEM can replace the requirement to make actual inquiries about a consumer’s financial situation and, in order to understand a consumer’s objectives and requirements, the reason given by a consumer for requiring credit must be specific and consistent with the amount of credit sought.
In February and May of this year ASIC set its sights higher, approaching Wide Bay Australia Limited and the Bank of Queensland about their responsible lending practices. ASIC was concerned that Wide Bay relied too heavily on limited information provided by a broker in respect of a consumer’s requirements and objectives and that the Bank of Queensland was using a benchmark to estimate the living expenses of consumers applying for home loans, rather than asking borrowers about their actual expenses. In both instances, the lenders agreed to resolve the issues identified and ASIC did not pursue civil penalties.
Just over a month ago ASICs report on interest-only home loans (Report 445) was released and it became very clear that ASIC was again sending a warning to lenders about the use of benchmarks and the importance of collecting detailed information about requirements and objectives. Our previous article on Report 445 can be found here.
ASIC expressly noted in Report 445 that it would continue to monitor and assess lending standards and compliance with the responsible lending obligations more generally (in addition to interest-only home loans). The message is clear. ASIC expects all lenders to revisit their responsible lending practices to ensure they are up to scratch.
Who is next on ASIC’s hit list?
The writing is on the wall. ASIC’s systematic approach to targeting non-compliance in the responsible lending space in the last 12 months clearly demonstrates that ASIC is not backing down from pursuing lenders that it considers are not satisfying their responsible lending requirements.
Going forward we predict that ASIC will conduct a further review of regulated margin loans and consumer loans by applying the principles set out in Report 445 and updated RG 209 and that ASIC will take action against any lender that has not implemented the necessary changes.
No lender is immune from ASIC taking an interest in their responsible lending practices and given ASICs broad powers in the space, it is important that all lenders review their processes for compliance with Report 455 and RG 209. At a minimum, ASIC has the ability to name and shame which can have broad reputational consequences. ASIC can also seek enforceable undertakings and civil penalties (which can be quite substantial, particularly where a lender does not remediate issues identified by ASIC, as we have seen in the Cash Store case). We predict that ASIC will be utilising these powers in the next 6 to 12 months where lenders have not heeded its warning.