Responsible lending

Posted by Clint Davis | 29 Jan

Responsible lending: ASIC’s noble quest to eliminate unsavory lending practices.

Make reasonable inquiries into a consumer’s requirements and objectives. Make reasonable inquiries into a consumer’s financial situation. Take reasonable steps to verify a consumer’s financial situation.

The foundations of the conditions which make a credit licensee a ‘responsible lender’ summarised in three sentences. Seems pretty simple, right?

One would think so, especially after the landmark outcome of The Cash Store case, in which the Honourable Davies J made it pretty clear in his judgement to the entire lending industry in Australia – be responsible with your lending practices. It’s not enough to just do it either. It needs to be done right.

Anyone who argues that there isn’t enough material to ensure compliance with these laws just doesn’t have a colloquial leg to stand on. ASIC last updated its Regulatory Guide 209 Credit licensing: Responsible lending conduct in November 2014. There’s also various legal commentary available on the subject as well as numerous media releases and statements.

So why then, even with ASIC monitoring every corner of the industry like the Eye of Sauron, are lenders still failing to satisfy the responsible lending obligations?

In one of ASIC’s most recent Media Releases (16-009MR), one of the big 4 banks is the latest to engage in irresponsible lending practices when failing to make reasonable inquiries about a consumer’s income and employment status before providing credit card limit increases to customers. According to the Media Release, the bank has committed $1 Million (over four years) to a remediation program that includes customer refunds and to supports financial counselling and literacy.

Wow, $1 Million! Well shucks, that’s a hefty sum anyway you slice it. Increasing consumer financial support and overall community literacy obviously must be important to the bank… But hold up folks, the bank also announced late last year that they would be increasing their annual investment spend by 20 per cent to $1.3 Billion to fund a long term customer service model reliant on superior technology.To put things into context, consider that the bank reported a non-interest income of $6,301 million for the FY15 period. I suppose, all things considered, ASIC’s slap-on-the-wrist $1 million doesn’t really phase a big bank in the scheme of things.

ASIC gave the bank a pat on the back for their cooperation in the matter including the bank’s suspension of its credit card limit increase offers during the period while ASIC’s concerns were resolved and the processes improved.

One has to wonder if the ‘atta-boy’ has truly been earned? With the colossal financial resources at their disposal, shouldn’t the banks – especially the “Big 4” – have perfected their responsible lending processes by now? Call me crazy, but is it so far-fetched to believe these lenders should already be acting as a role model for the rest of the credit industry?

Let us know what you think in the comments below, and stay posted for our weekly releases!

Disclaimer: Incredo does not give financial advice. The information contained on this web site is intended to be generalist in nature, it does not take into account your personal situation or your financial needs, objectives and goals. You should carefully consider whether the information provided is applicable to you, and where appropriate, seek professional advice from a licenced financial adviser before acting on any information.

Clint Davis

Clint Davis is a Solutions Architect with over 13 years of experience in the field of Information Technology and Debt Management. His extensive technical knowledge allows for the identification and implementation of robust, scalable systems that substantially reduce operating costs and allow for corporate expansion.

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