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Earlier this week, the Australian Securities and Investments Commission (ASIC) published updated guidance (RG 209) surrounding the responsible lending obligations that are contained in the National Consumer Credit Protection Act 2019.
Among the changes in the new “principles-based” RG 209 is the inclusion of greater detail regarding the record-keeping responsibilities of lenders and brokers, particularly as it pertains to written assessments completed during the application process.
ASIC has issued two new directives concerning what should be included in a written assessment (RG 209.259) when describing why a credit product passes the “not unsuitable” test.
As per the old guidance, lenders and brokers have been advised to include the following in their written assessments:
- a statement of a lender/broker’s understanding of the consumer’s requirements and objectives in relation to the credit product; and
- a description of a third-party’s financial position and how that information was verified if the primary borrower’s capacity to make repayments depends upon financial support from the third-party person.
However, in addition to the above, assessors are now advised to include:
- a description of the information about the consumer’s financial position that lenders/brokers have relied upon (including relevant amounts), and how that information has been verified; and
- a clear statement of the action the consumer has stated they will take if the consumer’s capacity to make repayments depends on them taking particular action to reduce their current expenses or potential liabilities.
Moreover, ASIC has advised lenders/brokers to keep a record of their written assessments to ensure they can demonstrate that “reasonable steps” were taken in a credit application if suitability is ever called into question.
“A failure to keep a record of inquiries made and verification steps taken, and the information you have relied on in your assessment, may make it difficult for you to adequately demonstrate that you have complied with your obligations,” ASIC has warned in its new guidance.
In addition to keeping a copy of a written assessment, ASIC has suggested that assessors demonstrate their compliance by:
- using “fact finds” and “needs analysis” documents;
- keeping records together; and
- preparing narrative statements.
The inclusion of guidance around record keeping is among several new features of ASIC’s updated responsible lending guidance, which includes new directives concerning the use of expense benchmarks for serviceability assessments and credit assistance to “mortgage prisoners”.
The new guidance is designed to provide greater clarity to the industry in light of uncertainty that arose following the banking royal commission.
[Related: ASIC issues guidance for lending to ‘mortgage prisoners’]
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