Responsible Lending Obligation

Responsible Lending obligations are set to be dropped from the National Consumer Credit Protection Act 2009 (NCCP). The government is working on dropping Responsible Lending obligations to ease credit with the exception of small amounts of credit contracts (SAACs) and consumer leases where the responsible lending obligation will continue to apply.

What is a Responsible Lending Obligation?

Credit License (ACL) holders follow responsible lending obligations under NCCP Act 2009. The responsible lending obligations involve:

  • Conduct reasonable investigation/queries to inquire about the consumer’s financial situation, their requirements and objectives
  • Complete reasonable steps to verify consumer’s financial situation
  • Complete assessment about whether the credit contract is ‘not unsuitable’ for the consumer

Australian Securities and Investments Commission (ASIC) is the authorised regulator with enforcing powers.

Wagyu and Shiraz case

Wagyu and Shiraz case is a case related to responsible lending obligations between ASIC and Westpac bank. ASIC alleged Westpac did not follow responsible lending obligations under NCCP before making a lending decision on some of the interest-only mortgages approved by Westpac.

Federal Court upheld the dismissal of this case by Justice Nye Perram. ASIC decided to not appeal the Federal Court’s decision. Justice Nye Perram took the view that a borrower’s current living expenses were not necessarily an indication of their future spending behaviour. The Consumer Groups such as the Financial Rights Legal Centre, the Consumer Action Law Centre, Financial Counselling Australia and Choice called for legislative changes to responsible lending obligations.

Proposed Reforms

Proposed reforms to responsible lending obligations will require consumers to take more responsibility for money borrowed. The Australian Prudential Regulation Authority (APRA) will regulate lenders for credit assessment and approval criteria. These reforms may also require debt management firms to hold an Australian Credit License (ACL) when they represent the consumer in disputes with financial institutions.

There is a fear that these reforms may encourage consumers to take more debt. This behaviour may increase household debt and push property prices further up.

The credit risk policies of lenders along with APRA regulations should help. Only consumers who can service debt should get credit.

At FairBroker®, we ensure we make a reasonable inquiry about consumers financial situation and collect information from the consumer. Mortgage Brokers and Lenders on FairBroker® assess consumer information according to their credit risk policy. The lenders and mortgage brokers then compete to provide the best credit option and interest rate to match consumer objectives.

It is our mission to ensure transparency and the best outcome for the borrower and hard-working mortgage broker. Looking for a mortgage or looking to refinance your existing mortgage? Create a deal request on FairBroker® and get unbiased mortgage advice and assured commission share from mortgage brokers.

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