(28 April 2020 – Australia) The Australian Securities and Investments Commission (ASIC) has reiterated that new borrowings must be diligently assessed to ensure responsible lending standards are maintained.
The corporate regulator has reminded major banks, non-Big Four lenders and non-bank challenger brands the responsible lending laws should not be considered a barrier to changing terms and conditions of existing loans in response to hardship situations. ASIC maintained that as banks assessed the flurry of new loan applications and refinancing arrangements, they should not assume that the income of new customers would return to pre-crisis levels.
ASIC supported banks' drive to support the economy facing unprecedented demand and supply shocks yet still expected new lending decisions to consider the ‘actual circumstances’ of customers which pointed to whether a recovery in their income was more or less likely.
The rules do not apply to billions of dollars in loan deferrals while the government has confirmed the laws do not apply when credit is provided to an existing customer using any part of the loan to operate a small business. Banks have acted to defer principal and interest repayments on A$100 billion of small business loan repayments for six months, freeing up an estimated A$8 billion to support borrowers through the coronavirus crisis.
“Banks are seeing a rapidly and exponentially increasing volume of calls from small businesses in distress, unable to meet payments” Australian Banking Association (ABA) CEO Anna Bligh stated.
“While we agree that ensuring the ongoing flow of affordable credit is important, it is also important that provision of new credit is not based upon assumed changes where these are unlikely to be met, and which will result in unmanageable debt burdens for consumers” stated ASIC Commissioner Sean Hughes.
“We consider lenders should seek to form a justifiable view of what is likely, based on their understanding of the circumstances affecting the particular consumer” ASIC said.