Confusion regarding responsible lending laws could be a thing of the past. On Monday, the Australian Securities and Investments Commission (ASIC) released new guidelines, with an aim to remove ambiguity from the assessment process for brokers and lenders alike.
Previously banks have been ambiguous on current laws, with many taking a more conservative approach – leading to claims that the laws were unnecessarily blocking access to credit.
The release of a 96-page report on the guidance of responsible lending laws intends to guide banks on appropriate clarity, and support to lenders and brokers in meeting their obligations.
Fuelling the claims has been the recent low growth in housing credit, and in their December minutes the RBA noted that it had “picked up only slightly”.
Despite the lack of credit lending, mortgage rates are currently experiencing record lows; which those who can access credit are taking advantage of.
The new guidelines represent the first update to responsible lending laws in five years.
The current laws exist to help lenders avoid burdening customers with unsustainable debt.
ASIC Commissioner, Sean Hughes, says that the update aims to make it easier for lenders to follow the law without having to be overly cautious.
“What we’ve tried to do is make it easier for lenders to comply with their obligations by providing them more detailed information about what they need to do,” he said.
“The provision of credit is ultimately a decision for banks.”
Australian Banking Association CEO, Anna Bligh, is pleased with the new guidelines.
She says that they will provide banks with the clarity they need to assess what their obligations to customers are.
“Our member banks take their responsible lending obligations seriously as they seek to comply with the law and meet customer demand to access timely and appropriate credit,” she said.
“The industry is pleased to see ASIC has maintained a principles-based approach to lending, which as an industry we have called for, and to ensure banks are able to fulfil their obligations without the process becoming too restrictive for customers.“
As part of the guidelines, ASIC concludes that when it comes to reducing costs, certain types of spending – such as education, childcare, utilities and healthcare – are not necessarily able to be cut down to help meet repayments.
Words by Kathryn Lee
In these cases, the regulator suggests banks assess whether the cuts would be realistically achievable, concluding that if not, it is more likely the customer would end up in future financial hardship.