Regulator 'not backing down' on lending crackdown

In a Lexology report entitled Responsible lending – who will be ASIC’s next target? published this week, King & Wood Mallesons partner Kate Jackson-Maynes said “no lender is immune” from ASIC taking an interest in its responsible lending practices.

“Given ASIC’s broad powers in the space, it is important that all lenders review their processes for compliance with Report 455 and RG 209,” Ms Jackson-Maynes said.

“At a minimum, ASIC has the ability to name and shame, which can have broad reputational consequences,” she said. “ASIC can also seek enforceable undertakings and civil penalties (which can be quite substantial, particularly where a lender does not remediate issues identified by ASIC, as we have seen in The Cash Store case).

“We predict that ASIC will be utilising these powers in the next 6 to 12 months where lenders have not heeded its warning.”

ASIC has aggressively pursued smaller lenders, obtaining nearly $19 million in penalties – the largest civil penalty ever obtained by ASIC – against two lenders that had demonstrated significant non-compliance: The Cash Store and Assistive Finance Australia.

The Cash Store case resulted in an update to ASIC’s guidance on responsible lending requirements in RG 209 in November 2014.

“The message from this update was clear,” Ms Jackson-Maynes said. “ASIC does not consider that benchmarks such as HEM can replace the requirement to make actual inquiries about a consumer’s financial situation and, in order to understand a consumer’s objectives and requirements, the reason given by a consumer for requiring credit must be specific and consistent with the amount of credit sought.”

Earlier this year, ASIC approached Wide Bay Australia Limited and the Bank of Queensland about their responsible lending practices.

“ASIC was concerned that Wide Bay relied too heavily on limited information provided by a broker in respect of a consumer’s requirements and objectives and that the Bank of Queensland was using a benchmark to estimate the living expenses of consumers applying for home loans, rather than asking borrowers about their actual expenses. In both instances, the lenders agreed to resolve the issues identified and ASIC did not pursue civil penalties,” Ms Jackson-Maynes noted.

“The writing is on the wall,” she said. “ASIC’s systematic approach to targeting non-compliance in the responsible lending space in the last 12 months clearly demonstrates that ASIC is not backing down from pursuing lenders that it considers are not satisfying their responsible lending requirements.”

King & Wood Mallesons predicts that ASIC will conduct a further review of regulated margin loans and consumer loans by applying the principles set out in Report 445 and updated Regulatory Guide 209 (RG 209) and that ASIC will take action against any lender that has not implemented the necessary changes.

“In the last 12 months we have seen ASIC target the responsible lending practices of a broad spectrum of lenders, from the fringe players to the big banks,” Ms Jackson-Maynes said.

“Their message is clear – you must change your practices to address our concerns or we will take action.”