When ASIC released consultation paper CP 309 in February 2019 setting out its proposals to update its guidance on Responsible Lending contained in RG209, it is obvious that it did not expect the extent of the reaction from industry or the number and extent of submissions. In total, 72 submissions were received. ASIC had originally proposed to release its responses to submissions in August or September 2019.
This is an unusual step for ASIC to take and reflects the importance of this issue. As ASIC explains:
On this occasion, ASIC has decided to use its hearing power to help it develop its regulatory guidance on responsible lending obligations. The application of these obligations is critical to the making of appropriate credit decisions, and we are aware that our guidance on these obligations is a matter of significant public interest.
We think public hearings will provide a useful and transparent way to robustly test with selected participants some of the main issues and views raised in the written submissions in response to Consultation Paper 309.
While the hearings will be open to the public and live streamed, appearance at the hearing is by invitation only. ASIC has already contacted those parties invited to participate in the hearings. ASIC has stated that it will update its “hearings page” with a list of participants for each hearing once the final list has been confirmed as well as an expected link to the live stream.
ASIC’s thought process behind its selection criteria for who has been invited to appear is explained thus:
We have selected from the submissions some parties that we consider will be able to provide additional views and perspectives on key issues that have been raised across a range of industry and consumer stakeholders.
At the public hearings, the acceptability of using the Household Expenditure Measure (HEM) to assess and verify expenses will no doubt be a topic of hot debate.
While it is clear that to do so is not in accordance with the requirements of the National Credit Act, it appears that relying on a HEM based benchmark may not necessarily lead to an adverse consumer outcome. It is interesting to note that at paragraph 56 of the Agreed Statement of Facts filed in the Federal Court proceeding in ASIC V Westpac Banking Corporation NSD293/2017 in September 2018, it was acknowledged that Westpac loans which were assessed using its Automated Decision Process did not result in a higher incidence of defaults or hardship applications. Paragraph 56 is extracted below.
Home Loans Conditionally Approved by the Automated Decision System during the Relevant Period have to date:
(a) had a lower rate of hardship applications than manually approved Home Loans originated during the Relevant Period; and
(b) had a similar rate of 60+ Days Delinquency to manually approved Home Loans originated during the Relevant Period.
Manual assessment may not be what it is cracked up to be!
For those involved in credit activities, these public hearings will be critical to follow.