What can more hearings mean for the responsible lending industry?
Earlier this week, the Australian Securities and Investments Commission (ASIC) announced receipt of over 72 submissions on its guidance on the responsible lending obligations consultation paper first opened in February, and confirmed they intend to hold hearings, to be live-streamed online, to provide greater understanding of business operations.
“The responsible provision of credit is critical to the Australian economy. We are taking this opportunity to test views to ensure our guidance remains relevant, clear and timely. Public hearings will provide a robust and transparent way to air issues and views raised in written submissions,” said ASIC Commissioner Sean Hughes.
At the ASIC Forum, ASIC Chairman James Shipton commented that the responsible lending consultation intends to apply to senior leadership the discipline of asking themselves whether what they are doing is fair or unfair.
“So, the ‘why not litigate?’ approach is a procedural discipline on us. We’re applying the same procedural discipline question obligations that boards and senior leaders must ask themselves when considering the business line of a given product, or when looking at certain ways of getting remuneration: is this fair or is it unfair? Is it causing harm? I'm certainly not convinced that level of discipline—of asking the same sort of questions medical professionals must ask themselves: whether their actions will do no harm—is being inculcated into every sector of the industry,” Shipton explained.
Industry reaction to the consultation
In James Frost’s article, Bank Slam Crackdown on Lending, he highlighted Westpac as one of the biggest opponents to the responsible lending issue:
It warns that some of the ideas being shopped around by ASIC are unworkable and potentially damaging to the economy.
But if one searches for responsible lending hits on the ASIC website, one finds ASIC’s allegations made against Westpac for failing to properly assess the ability for borrowers to repay their loans between December 2011 and March 2015.
At the end of last year, the bank admitted to breaching its responsible lending obligations and had to pay $35 million in civil penalties.
Banks have improved
The Australian Bankers Association (ABA) believes banks have improved their processes and their approach towards achieving better consumer outcomes.
In their submission to the consultation, the ABA admitted they were concerned about what appeared to them to be a move away from principles-based regulation and the potential negative impacts such a move might have on competition.
They argued the banks have maintained a ‘tremendous effort’ to change their processes and stated that a move away from a principles-based approach would have a negative impact on smaller Authorised Deposit-taking Institutions, deterring consumers from switching products due to cumbersome processes that could possibly push them towards products offered by providers that are not covered by the National Consumer Credit Protection (NCCP).
The ABA argued that, while there had been poor decisions made in the past that led to poor consumer outcomes for some, banks have made changes to their processes to correct this:
We note, however, that some banks have also taken recent steps to improve their practices, as acknowledged by ASIC and noted by APRA in its recent information paper 2. In terms of the adequacy of the current regulation, the Royal Commission considered whether further changes were needed to improve consumer outcomes. It concluded that current regulation, when implemented properly, would be adequate to ensure the risk of poor lending decisions. It did not recommend further changes as part of its comprehensive review of the sector.