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ASIC updates guidance on responsible lending obligations
Released 1 April 2011



The Australian Securities and Investments Commission ASIC has updated its regulatory guidance in regard to older and retired home owners who may not be able to replay borrowed money.   

The Regulatory Guide 209 Credit licensing: Responsible lending conduct provides further guidance and clarity for lenders on assessing borrowers' capacity to repay under the responsible lending requirements of the National Consumer Credit Protection Act 2009 (National Credit Act).

ASIC Commissioner Peter Boxall said: “We are concerned by reports of older borrowers whose employment will reduce, or cease, before the end of the loan term, being refused loans because some lenders are adopting an unnecessarily restrictive approach to meeting the responsible lending requirements.

“Undertaking the range of enquiries required by the legislation will often reveal other ways that they will be able to repay the loan.”

Boxall said the new responsible lending requirements in the National Credit Act are an important protection for consumers, but they should not be an inflexible barrier to credit for any segment of the population, and should not prevent consumers obtaining credit that they can reasonably afford.

The changes that ASIC has made include:
  • clarifying that a conclusion of substantial hardship (where a borrower appears to have no obvious continued income stream for the full life of the credit contract) can often be rebutted with reasonable enquiries about the borrower's financial situation, requirements, and objectives.
  • providing further guidance on issues a lender should consider when assessing the relevance of income from a person - other than the borrower - in assessing the borrower's capacity to repay.
ASIC has also clarified that the use of automated systems and tools for testing the reliability of information about income provided by an intending borrower may play a role in satisfying the requirements to take reasonable steps to verify such information, subject to some constraints.

The responsible lending obligations in the National Credit Act were phased in from 1 July 2010. Businesses engaging in consumer credit activities (including banks, credit unions, finance companies, brokers, and pay-day lenders) were subject to the responsible lending obligations beginning from 1 January 2011.