ASIC’s new credit card provision to affect home loan assessors

The Australian Securities and Investments Commission (ASIC) recently introduced new assessment criteria to be used by banks and credit providers when assessing new credit card contracts or credit limit increase for consumers.

From 1 January 2019, credit licensees will be required to assess whether a credit card contract or credit limit increase is unsuitable for a consumer based on whether the consumer could repay the full amount of the credit limit within the period prescribed by ASIC.

The regulator has noted that the new responsible lending obligations will apply to licensees that provide credit assistance and licensees that are credit providers, for both new credit card contracts and credit limit increases under existing credit card contracts.

Further, ASIC has stated that as part of the new measure, credit providers undertaking responsible lending assessments for “other credit products” should ensure that the consumer “continues to have the capacity to repay their full financial obligations” under an existing credit card contract within a “reasonable period”.

ASIC claimed that credit licensees “should consider assuming a higher amount of repayments consistent with repaying the full balance of the credit card within three years, and not merely their contractual minimum repayments”.

Some industry stakeholders, including the Australian Banking Association (ABA), have said that, considering the broad implications of ASIC’s new measure on all credit products, credit providers should be given more time to implement appropriate processing changes.

In its submission to ASIC, the ABA noted that it was concerned that the regulator had not allowed sufficient time for the industry to appropriately assess and develop the impact of this regulatory change on their products and IT systems as well as implement the necessary changes internally.

The ABA claimed that the introduction of ASIC’s new measure would require “a significant investment of time and resources” across many key areas, including:

• internal credit policies
• product design and consumer information materials
• compliance controls
• core bank information and technology systems — change will be required across multiple systems, including decision engines for new credit capacity calculations
• new procedures and policies for staff
• staff training and education

The ABA added: “We strongly submit that ASIC’s proposed compliance date of 1 January 2019 does not provide a realistic transition period for industry given the short time frame facing industry following the release of a final instrument.

“ABA members are also particularly concerned over this date given that many banks attempt to avoid making significant technology systems changes over the Christmas/New Year holiday period due to the difficulty of coordinating development and testing at that time.

“Any change carries a potential higher risk to customers at this crucial time of the year when transaction processing is critical.”

In response to such concerns, ASIC extended the period of implementation for responsible lending assessments involving other credit products to 1 July 2019.

“We acknowledge that this approach may require changes to credit providers’ systems that may take additional time to implement,” the regulator said.

“We expect that implementation on this aspect of the reform will be complete by all credit providers by 1 July 2019.”

[Related: Major bank admits to responsible lending breaches, fined $35m]