We're joined today by Steven Klimt, who's a Partner in the Retail Banking and Regulatory Financial Services team at Clayton Utz. Steven, welcome to BRR Media.
Earlier this month ASIC released a Consultation Paper on credit advertising to help industry compliance with the Australian consumer laws. How has the industry generally been faring with the tougher obligations?
Well Kate we should probably start with what the Consultation Paper is. It's a draft and a mark-up of a general financial services advertising guidelines or regulatory guide put out by ASIC that contains mark-up to deal with specific situations in relation to credit advertising and that's what was actually released. And I wouldn't necessarily say that they're tougher obligations – it just gives some sort of guidance as to the way in which ASIC will view these matters and the way in which ASIC will take steps to enforce advertising obligations.
And Steven have we seen ASIC so far since it's released the Consultation Paper targeting any particular behaviour or activities?
Well ASIC has been targeting particular behaviour, I'm not certain any of it has been as a consequence of the Consultation Paper, but in recent times, as recently as the day we're doing this interview, which is Tuesday, 19th June, they released a press release about one of their targets in terms of RESI.
What ASIC has actually been doing is – and you see in the record of their activities and the media releases they release – they've been targeting advertising for credit cards and advertising of interest. Today the RESI press release was in relation to not properly advertising comparison rates.
They've also had a successful intervention in relation to HSBC, where HSBC advertised that there was an up to 0.95% off home loans, but that only applied to home loans that were greater than $1.5 million. If the home loans were for under that amount then lower discounts would be offered, even though that was mentioned in the disclaimers, ASIC said that wasn't good enough and had HSBC withdraw the ad and publish corrective advertising.
Then the other thing that ASIC has been looking at recently has been credit card advertising. So for example Bankwest was given an award by Money Magazine as being the cheapest bank credit card, but then Bankwest advertised that as being the cheapest credit card, and ASIC said that's not good enough, it has to be accurately stated there are cheaper credit cards, you're just the cheapest bank credit card, so they had to withdraw that advertisement.
It certainly seems like credit providers need to be very careful about their behaviour. But if we move back to the Consultation Paper itself, what were the main recommendations that came out of the paper?
A lot of what's in the paper is already there and is not amended. The two main things that came out of the paper were first, in relation to interest rates, ASIC specifically says that you need to give a realistic impression of the consumer's overall costs in taking out a loan. So they give the example of a honeymoon rate, which is a discount rate for an early part of the loan and then the loan reverts to a higher rate. What they say in those circumstances is you can't just advertise the honeymoon rate, you have to say, and relatively prominently, what that rate will be afterwards so the consumer knows what they're likely to pay.
Then the other point about interest rates they raise, and also in relation to classes of people to whom advertising is targeted, is that there's an interaction with other regulatory obligations that credit providers have in relation to responsible lending. Essentially responsible lending means that credit providers can't lend to people who can't afford to make the repayments. And so what ASIC says in this draft paper is that you can't engage in any advertising which would be at odds with a credit provider's responsible lending obligations. So that means that ads that for example say no documentation required, no credit checks, are inconsistent with an obligation to check whether a debtor can afford loan repayments and therefore they fall foul of the consumer law requirements.
Just finally, maybe if we look at credit providers in relation to responsible lending and also the interest payments, what would be your top tips for these credit providers to ensure that they are complying with their obligations?
Well my top tips would be number one, if you're a credit provider look at the overall impression that your ad will be creating, and make an assessment based upon that overall impression whether there's anything misleading in it.
Secondly I'd say don't rely upon excessive use of disclaimers in small print.
Thirdly, ensure that you comply with the specific regulatory requirements, so there are specific requirements where you disclose an interest rate, specific requirements in relation to comparison rates and you must make sure that you strictly comply with them because they're things that ASIC will be looking for.
And the fourth and final point, and this is probably a really basic point, make sure that what you say in your advertisements can be substantiated and is true and not misleading, and that's a basic test – not necessarily a legal test – but a basic test is what you're saying honest and what you're saying true.
Well Steven some good tips there. Thank you so much for joining us on BRR Media.
That was Steven Klimt who's a Partner in the Retail Banking and Regulatory Financial Services team at Clayton Utz. Now listeners if you have any questions for Steven you can send them through via email to firstname.lastname@example.org.
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