ASIC must overhaul responsible lending guidance to protect Australians

Consumer Action Law Centre (Consumer Action) has called on the Australian Securities and Investment Commission (ASIC) to urgently overhaul responsible lending guidance to better protect Australians from financial harm.

Consumer Action’s submission to ASIC’s consultation on responsible lending guidance says that clearer standards are required to strengthen lending standards. CEO Gerard Brody underscored the need for reform in the wake of the Banking Royal Commission.

“Burdening an individual or family with debt they can’t afford causes harm,” he says. “Over-indebtedness affects the ability for someone to provide for their housing, health, education and retirement. Problem debt also has harmful effects on physical and mental health and personal relationships.

“Unfortunately, ASIC’s existing responsible lending guidance is failing. The Banking Royal Commission has exposed bank and lender reluctance to move away from the practices that fuel consumer harm, as they fear losing market share or profit.

“ASIC now needs to set stronger minimum standards about what needs to be done to comply with the law.”

The submission includes real case studies of people whose lives have suffered as a result of banks and other lenders not checking a person’s financial position before providing a loan, relying on inaccurate benchmarks to determine a borrower’s financial position or not identifying circumstances that indicate fraud or economic abuse.

Consumer Action has used its submission to suggest how ASIC could substantially improve its guidance to the industry, including:

  • Lenders should not be able to “scale down” their obligations so that they don’t check a person’s financial position before providing a loan. ASIC’s existing guidance, that says responsible lending obligations are “scalable”, provides for a loophole that must be closed to prevent people taking on debt they can never pay back.
  • Lenders and brokers must collect a minimum of 90-days’ worth of account statements, and more in particular circumstances, and consider all aspects of an applicant’s financial position prior to providing a loan.
  • A lender must engage with a borrower to understand their purpose for borrowing and not provide loans that are unsuitable for a person’s needs. Automated lending systems have protected lenders’ credit risks and have not protected people from loans which are harmful.
  • Benchmarks that estimate a person’s financial position cannot, and must not, replace an actual assessment of an individual’s financial position.
  • If a loan is found to be irresponsible, borrowers should be provided with a clear right to debt waiver in recognition of the severe personal hardship and distress that is triggered by unaffordable loans.

Brody also called on the new Federal Government to play its part in protecting consumers.
“As the dust settles on the 2019 federal election, it is essential that the new government acts swiftly to prevent Australians from financial harm,” he says.

“In addition to ASIC working to make lending safer for the community, we also need to see the Federal Government step up to implement all of the findings of the Banking Royal Commission. It cannot be swept under the rug.”

You can read the full submission here [PDF].

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