ASIC targets first lender in mortgage market probe

Bundaberg-based building society Wide Bay Australia Limited (Wide Bay) will improve its responsible lending practices following ASIC concerns with the way the group was assessing its customers' suitability for home loans.

The outcome is part of ASIC's wider focus on the lending industry's compliance with responsible lending laws.

ASIC's concerns with Wide Bay followed a restructure of its customers' home loans undertaken in 2013 which was initiated by third party broker, FTS Finance Brokers Pty Ltd, which is owned by FTS Securities Pty Ltd (FTS). Wide Bay holds an equity stake in FTS.

ASIC was concerned that Wide Bay relied too heavily on limited information provided by FTS Finance Brokers Pty Ltd rather than checking directly with the borrower about their requirements and objectives. Wide Bay will be updating their application forms to ensure they capture relevant information about a borrower's requirements and objectives, as well as improving their processes when insufficient or inconsistent information is provided.

ASIC acknowledges the co-operation of Wide Bay in resolving this issue.

ASIC Deputy Chairman Peter Kell said: 'Lenders are fully responsible for ensuring a loan is suitable for a borrower. Having robust compliance systems is vital in ensuring customers are protected. '

ASIC has identified compliance with responsible lending obligations as a priority issue and, as part of its focus, announced in December 2014 a surveillance into banks and non-bank lenders' provision of interest-only loans (refer: 14-329MR).

The crackdown on responsible lending laws also follows a number of developments which has reinforced the importance of the national credit laws.

In August 2014, the Federal Court handed down a landmark decision on responsible lending obligations, making it clear credit licensees must, at a minimum, inquire about the consumer's current income and living expenses. Further inquiries may be needed depending on the circumstances of the particular consumer (refer: 14-220MR).

In response, in November 2014 ASIC updated Regulatory Guide 209 Credit licensing: Responsible lending conduct (RG 209) to incorporate the general findings of the Court on the responsible lending obligations for credit licensees (refer: 14-290MR). ASIC also updated RG 209 to make it clear that credit licensees cannot rely solely on benchmark living expense figures rather than taking separate steps to inquire into borrowers' actual living expenses.

The company will seek consent to move to ‘bank status’ from the Australian Prudential Regulation Authority (APRA) from 1 April 2015.