Publications - Corporate & Commercial
Responsible Lending: What is it and what are your obligations?
March 2018
Snapshot
In Australia, providers of credit must comply with the responsible lending conduct obligations set out in Chapter 3 of the National Consumer Credit Protection Act 2009 (Cth). The purpose of that legislation is to ensure that credit providers do not enter into credit contracts, suggest a credit contract, or assist with an application for a credit contract where the contract in question is unsuitable for the consumer.
Responsible lending laws are strictly enforced and apply to all credit providers and each credit application. However, it is clear from the recent establishment of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry that many lenders are still getting it wrong, and that consumers are still able to access credit contracts that are completely unsuitable to their circumstances.
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This article sets out the key requirements of responsible lending and provides a list of resources that both lenders and consumers can use to determine whether the responsible lending conduct obligations are being met.
Key Requirements of Responsible Lending
Wotlers Kluwer’s Australian Consumer Credit Law Reporter have released an online-only Responsible Lending Checklist to help consumers and creditors navigate compliance requirements in this complicated area of the law.
The key requirements addressed in that checklist are as follows:
Where can I find more information?
Wolters Kluwer’s complete Responsible Lending Checklist can be downloaded at http://prod.resource.wkasiapacific.com/resource/scion/document/default/acrlcomm1Uio2909542sl883705213.
The Australian Securities & Investments Commission also have useful checklists for both lenders and consumers available at https://asic.gov.au/regulatory-resources/credit/responsible-lending/ and https://www.moneysmart.gov.au/borrowing-and-credit/consumer-credit-regulation.
Updates on the progress of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry are available at https://financialservices.royalcommission.gov.au/Pages/default.aspx.
If you require any assistance with understanding how the responsible lending obligations may affect you, please contact us.
In Australia, providers of credit must comply with the responsible lending conduct obligations set out in Chapter 3 of the National Consumer Credit Protection Act 2009 (Cth). The purpose of that legislation is to ensure that credit providers do not enter into credit contracts, suggest a credit contract, or assist with an application for a credit contract where the contract in question is unsuitable for the consumer.
Responsible lending laws are strictly enforced and apply to all credit providers and each credit application. However, it is clear from the recent establishment of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry that many lenders are still getting it wrong, and that consumers are still able to access credit contracts that are completely unsuitable to their circumstances.
___________________________________________________________________________________________________________________________________________
This article sets out the key requirements of responsible lending and provides a list of resources that both lenders and consumers can use to determine whether the responsible lending conduct obligations are being met.
Key Requirements of Responsible Lending
Wotlers Kluwer’s Australian Consumer Credit Law Reporter have released an online-only Responsible Lending Checklist to help consumers and creditors navigate compliance requirements in this complicated area of the law.
The key requirements addressed in that checklist are as follows:
- Lenders should make reasonable inquiries about a consumer’s requirement and objectives. The type, length, rate, terms, special conditions, charges and other aspects of the proposed contract must meet the purpose of the credit.
- Lenders should make reasonable inquiries about a consumer’s financial situation.
- Lenders should take reasonable steps to verify a consumer’s financial situation (such as obtaining a recent credit report).
- Lenders should make an unsuitability assessment (and determine serviceability surplus and whether a buffer should be applied to allow for increased interest rates).
- Lenders should fulfil the obligation not to enter into a contract or increase a credit limit which is unsuitable.
- Lenders should provide a free copy of the unsuitability assessment to the consumer on request, (either within 7 days for requests made within 2 years from the date of the contract or 21 days for requests outside that time).
- Lenders should provide a credit guide to consumers.
- Lenders should provide a Key Facts Sheet to consumers when dealing with home loans and credit card applications.
- Lenders should provide a quote to the consumer once it is clear credit assistance will be provided.
- Lenders should provide credit or lease proposal documents to the consumer before providing credit assistance.
- Lenders should have good credit keeping procedures in place.
- All parties should provide documents in a compliant manner.
Where can I find more information?
Wolters Kluwer’s complete Responsible Lending Checklist can be downloaded at http://prod.resource.wkasiapacific.com/resource/scion/document/default/acrlcomm1Uio2909542sl883705213.
The Australian Securities & Investments Commission also have useful checklists for both lenders and consumers available at https://asic.gov.au/regulatory-resources/credit/responsible-lending/ and https://www.moneysmart.gov.au/borrowing-and-credit/consumer-credit-regulation.
Updates on the progress of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry are available at https://financialservices.royalcommission.gov.au/Pages/default.aspx.
If you require any assistance with understanding how the responsible lending obligations may affect you, please contact us.
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Tim Masters
Solicitor Bradfield & Scott Lawyers Level 1, 175 Macquarie Street Sydney NSW 2000 Telephone: 9233 7299 Email: tmasters@bradscott.com.au |
John Graves
Principal Bradfield & Scott Lawyers Level 1, 175 Macquarie Street Sydney NSW 2000 Telephone: 9233 7299 Email: jgraves@bradscott.com.au |
