Insights into ASIC’s Responsible Lending Hearings – Part 1
I had the opportunity to attend both days of ASIC's hearings into responsible lending in Sydney and Melbourne. I was also asked to present some background material on the LIXI initiative to standardise the Living Expense categories at the Melbourne hearing. It was great to be able to describe the context of our efforts to standardise.
Over the next few days, I'll be publishing my key insights here on the LIXI Blog.
Uncertainty remains over guidance with regards to pre-loan and post-loan financial situation.
The remarks provided by some lenders demonstrate they are enquiring about a customer's ongoing living expenses. Their wording indicates that the customer is being asked to consider and declare only regular expenses that will continue after the loan is drawn, or indeed if there are new expenses expected.
On the other hand, some presenters were clearly advocating for a more automated approach. For example, using data obtained from bank statements (or data aggregation services) to automate the preparation of a customer's declared expenses. Alternatively, the customer's declared expenses could be automatically verified with their recent expense history extracted from this bank statement data.
Clearly, a credit provider must also enquire into any significant changes in circumstances that will adversely affect the applicant's ability to repay the loan.
But what happens when the act of drawing down on the loan is itself the significant change?
For example, for a first-time borrower, their pre-loan expenses can be quite different from their post-loan expenses. What is a lender required to do with respect to verifying a customer's historic declared expenses in this case? What does it mean for a credit provider - how can future expenses be verified?
Given the focus of much of the Commissioners' questions focussed on this area, I think it is possible that ASIC will provide some additional guidance around their expectations with respect to pre-loan as opposed to post-loan expense enquiry and verification. Watch this space ...
CEO - LIXI Limited
20th August 2019
Last Updated: 26th August 2019