ASIC: Banks Must Provide Credit Cards Suitable For Each Customer

ASIC’s policy proposal on implementing responsible lending obligations for credit licensees and allowing Australian consumers access to more suitable credit cards was released on 2 September 2009. ASIC is undertaking a mammoth project to implement the proposed National Consumer Credit Protection Program.

115 Responsible Lending, the ASIC Consultation Paper details how ASIC proposes to implement the responsible lending obligations as they apply to Australian credit licensees.

Dr Peter Boxall, ASIC Commissioner said in an interview: “The responsible lending obligations are a key consumer protection feature of the new credit regime. Our proposals aim to give credit licensees guidance about our expectations, while still allowing businesses flexibility in deciding how they will meet the obligations.”

‘˜We strongly encourage stakeholders to provide feedback on our proposals, as this will assist us to further refine our guidance where necessary.”

Under the new obligations lenders will have to be more responsible to provide consumers with suitable credit cards by screening them better for appropriate lending purposes.

Up until now the field was reasonably clear for all sorts of malpractices meaning lenders were able to lend money to unsuitable clients knowing they didn’t have the financial means to repay their debt.

ASIC will continue to publish a range of consultation and guidance papers to assist the industry with the transition. You can obtain a detailed schedule of ASIC’s planned public consultation from ASIC’s website at www.asic.gov.au/credit. Once the new legislation has been passed by the Australian Parliament, ASIC will release regulatory guides while taking into account comments received on these consultation papers.

ASIC will also continue to meet regularly with industry, consumer representatives and other interested stakeholders to discuss the proposed regulatory regime.

The National Consumer Credit Protection Bill 2009 requires credit licensees to meet responsible lending conduct obligations. These obligations apply to credit unions, banks, finance companies and any other institution lending money.

The idea behind the new legislation is to prevent unsuitable credit card lending to consumers. Before a lender suggests, assists with, or provides a new credit contract or lease to a consumer, the credit licensee must: Make a reasonable effort to inquiry with the consumer about their financial situation and their requirements and objectives in relation to the credit contract;
Based upon these inquiries, the lender must then assess whether the credit product is unsuitable for the consumer and only proceed if the credit product is not unsuitable; and
give the consumer a copy of the assessment if requested.
ASIC will administer the responsible lending obligations to reduce the risk of consumers being offered loans that they cannot afford to repay or are otherwise clearly unsuitable for them. ASIC has formulated the proposals in CP 115 in light of this objective.

Source: ASIC

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