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Credit Businesses Unprepared for Responsible Lending Law
1 July 2010
Five steps to get compliance-ready ahead of 30 June deadline
1 July 2010: Veda Advantage research* suggests many Australian mortgage brokers, credit providers and finance companies are unsure how to implement responsible lending requirements, despite registering ahead of the 30 June 2010 deadline for the Federal Government's National Consumer Credit Protection (NCCP) law - encompassing 'responsible lending' obligations.
If credit providers and credit assistance providers haven't registered with the Australian Securities and Investments Commission (ASIC) by 30 June, or don't comply with the ongoing requirements of the legislation, they risk having their credit licence revoked, million dollar fines, and/or imprisonment for up to two years.
Chris Gration, Head of External Relations at Veda Advantage, said there is a worrying level of uncertainty about the requirements to comply with the new legislation.
Veda Advantage research identified credit businesses are unclear on:
- measures required to consistently assess a consumer's capacity to pay a loan
- how best to provide a preliminary or final credit assessment - a new requirement under responsible lending legislation
- What constitutes 'reasonable inquiries' to 'verify a consumer's financial situation'.
"Under responsible lending legislation, credit providers and credit assistance providers must make reasonable inquiries about a consumer's requirements and objectives and financial circumstances, as well as taking steps to verify the consumer's financial situation. This requires robust credit risk management processes and using the best available information to make a credit decision.
Credit licensees must, on the basis of these inquiries, satisfy themselves that a credit arrangement is not unsuitable, including that a consumer can meet its financial terms without substantial hardship," said Mr Gration.
"These new responsible lending obligations will need major change to application processes for many licensees.
But Veda Advantage research shows many businesses, particularly small to mid tier financial companies, are focusing on the Government registration process for responsible lending and are yet to address the ongoing compliance requirements," he said.
Veda Advantage has developed a five step plan to help businesses meet their obligations under the new legislation which come into effect on 1 July.
- Have a documented and auditable process in place: It's not enough to simply register - businesses are responsible for ongoing compliance from 1 July. Read the regulatory guides on the ASIC website (www.asic.gov.au/credit).
- Understand your current lending procedures and make the appropriate adjustments: Make sure you understand your business' current lending processes. These processes have potentially been in place for years and need to be re-examined to get them compliance ready.
- Understand your customers' requirements: Credit providers and credit assistance providers now have increased responsibility for ensuring consumers have their credit capacity evaluated and are matched with appropriate financial solutions. This includes assessing a consumer's current financial lending obligations, and projected capacity to repay. Checking a consumer's credit file is a fundamental tool in ensuring best practice consumer credit lending and particularly powerful when used as part of a decision and assessment process.
- Set up good practice responsible lending documented processes. Email Veda Advantage for information on Veda solutions to support good practice credit risk management at responsiblelending@vedaadvantage.com.au or visit Veda's website.
- Train and monitor all relevant staff: Responsibility for this legislation does not stop with the risk manager. All staff should be briefed on the changes and understand their role in satisfying compliance with NCCP legislation.
"The good news is, simple adherence to introducing good practice credit management can help credit providers and credit assistance providers make sharper lending decisions, as well as comply with the regulations," said Mr Gration. "Veda Advantage is Australia's largest provider of consumer credit information, and our credit reports, scoring and decisioning solutions provide this information in keeping with NCCP legislation."
- Ends-
Media information: Sally Robertson at Launch Group 02 9492 1089 or 0400 927 003
*Veda Advantage quantitative and qualitative research consisted of around 50 face-to-face as well as phone interviews with credit providers and credit assistance providers over April to June 2010.
About Veda Advantage www.vedaadvantage.com.
Veda Advantage has been at the forefront of the information services industry for many decades. Issues such as privacy, data security, fraud and business intelligence are part of our commercial landscape. We provide insights into more than 16.5 million credit active individuals and 4.4 million companies and businesses. You can apply for a copy of your business or company credit file at www.mycreditfile.com.
DISCLAIMER
Purpose of Veda Advantage media releases:
Veda Advantage media releases are intended as a contemporary contribution to data and commentary in relation to consumer credit activity in the Australian economy. The information in this release is not intended to provide guidance or commentary as to Veda Advantage's financial position nor does it constitute legal, accounting other professional financial advice. The information may change and Veda Advantage does not guarantee their currency or accuracy. To the extent permitted by law, Veda Advantage specifically excludes all liability or responsibility for any loss or damage arising out of reliance on information in this release and the data in this report, including any consequential or indirect loss, loss of profit, loss of revenue or loss of business opportunity.
