ASIC wants better scrutiny
(8 September 2009 – Australia) ASIC has announced a proposal that will ensure better scrutiny by credit providers in Australia when it comes to measuring a client’s ability to pay for loans.
The Australian Securities and Investment Commission (ASIC) has released its policy proposals on how it plans to implement the responsible lending obligations for credit licensees.
The proposal is part of the consultation process that ASIC is undertaking to implement the proposed National Consumer Credit Protection Program.
Under the responsible lending obligations, licensees will have to conduct reasonable inquiries about a consumer and assess that a credit product is not unsuitable for the consumer before offering or providing the credit product, ASIC said.
ASIC described that the credit licensee must make ‘reasonable’ inquiries of the consumer and then form a view as to whether the contract is unsuitable for the consumer, whether it be for new or existing credit terms.
The key concept is that credit licensees must not enter into a credit contract with a consumer, suggest a credit contract to a consumer or assist a consumer to apply for a credit contract if the credit contract is unsuitable for the consumer.
The ASIC paper said that the requirement is scalable, which means that the obligation varies depending on the circumstances, including the potential impact on the consumer of entering into an unsuitable credit contract, the complexity of the credit contract and the objectives and financial literacy of the client.
These obligations will apply to both credit providers (i.e. lenders, such as banks, credit unions and finance companies) and credit assistance providers (e.g. mortgage or finance brokers).
The proposal is part of the consultation process that ASIC is undertaking to implement the proposed National Consumer Credit Protection Program.
Under the responsible lending obligations, licensees will have to conduct reasonable inquiries about a consumer and assess that a credit product is not unsuitable for the consumer before offering or providing the credit product, ASIC said.
ASIC described that the credit licensee must make ‘reasonable’ inquiries of the consumer and then form a view as to whether the contract is unsuitable for the consumer, whether it be for new or existing credit terms.
The key concept is that credit licensees must not enter into a credit contract with a consumer, suggest a credit contract to a consumer or assist a consumer to apply for a credit contract if the credit contract is unsuitable for the consumer.
The ASIC paper said that the requirement is scalable, which means that the obligation varies depending on the circumstances, including the potential impact on the consumer of entering into an unsuitable credit contract, the complexity of the credit contract and the objectives and financial literacy of the client.
These obligations will apply to both credit providers (i.e. lenders, such as banks, credit unions and finance companies) and credit assistance providers (e.g. mortgage or finance brokers).
Subscribe