A new set of responsible lending guidelines have been released with the goal of clarifying the obligations of lenders.
The guidelines recommend that lenders start asking their customers to prove they can save money and afford a loan by letting go of discretionary spending like private schools and Netflix subscriptions.
The Hayne royal commission was confusing at times with contradictory messages and ASIC commissioner Sean Hughes said it was about striking a balance between giving lenders and brokers maximum flexibility and detailed guidance.
“The provision of credit is a decision for a lender and not a decision for ASIC,” he told Australian Financial Review.
“These guidelines have been made to assist lenders make good lending decisions.”
“We are not adding new or additional requirements that do not already exist.”
The guidelines come amid an increasing feeling from regulators that lending may have become a little too cautious.
The move is the first major change to ASIC’s responsible lending guidelines since 2014 and they are trying to prevent customers being drawn to loans they can’t sustainably service.
ASIC are also recommending that banks look beyond the basic spending benchmark that is the Household Expenditure Measure (HEM) when getting a picture of a customer’s spending.
The regulator says HEM does not take into account enough expenses including medical bills, counselling, life insurance, superannuation, HECS and child support.
Australian Banking Association CEO Anna Bligh said the industry was pleased that ASIC hadn’t come in too heavy-handed and had adopted this principles-based approach.
“This is an important document for the industry to guide each bank’s approach to responsible lending which we will now study closely to assess any impacts it may have on borrowing for customers,” she told AFR.