A question that probably springs to mind when you think of ASIC
is 'what is the regulator focusing on right now?' In a
speech given to the MFAA on 14 May 2014 Deputy Chairman Peter Kell
addressed that very question.
ASIC's areas of focus in relation to consumer credit
General obligations relating to conflicts of interest
Property investment and lending through SMSFs
ASIC's focus on ensuring that credit advertising is not
misleading will not come as a surprise to many. ASIC has been
increasingly active in this space over the last 12-18 months.
Misleading, deceptive and unconscionable conduct is prohibited
under the Australian Securities and Investments Commission Act
2001's consumer protection provisions. As well as
financial services, these provisions also cover credit
ASIC acknowledges that advertising has a valuable role in
assisting consumers to be more informed but it can also have a
detrimental effect on customers and potentially the industry if the
advertising is misleading.
Importantly ASIC has said that it is looking at taking more
civil penalty actions for misleading advertising.
RG 234 Advertising financial products and advice services
(including credit): Good practice guidance is a good place to
start when reviewing any advertising material.
ASIC has published a number of reports on responsible lending
over the last few years, and will soon publish its report on
lenders' responsible lending conduct focusing on 'low
doc' home loans.
Following what ASIC has learnt about industry practices through
those reports it offers the following compliance tips:
Give the consumer a copy of the suitability assessment at the
same time as making an application for, or offer of, credit. Some
licensees believe that this reduces future disputes with
Maintain good records which demonstrate an understanding of the
consumer's requirements and objectives including the relative
priority of the objectives.
Make inquiries about, and take reasonable steps to verify, the
consumer's variable expenses. Don't just rely on benchmark
figures. Every consumer is different. Make the time to find out
When making suitability assessments, use adequate buffers that
take into account fluctuations in the consumer's expenses and
income, as well as increases in interest rates.
Please check out our mindmap below on Responsible Lending:
ASIC has a no tolerance position for loan fraud involving false
loan applications and related documents. Several infringement
notices have been issued and licensees as well as individuals have
also been banned from the industry. Of the 42 persons banned since
the introduction of the National Consumer Credit Protection Act
2009 (the Credit Act), almost half have been in relation to
instances where false documents were provided to lenders.
General obligations relating to conflict of interest
Under the general conduct obligations in the Credit Act
licensees must ensure that consumers are not disadvantaged by any
of conflict of interest that may arise in relation to credit
activities engaged in by the licensee or its representatives.
ASIC has initially been focusing on flexible commissions in the
motor vehicle finance industry. This focus has led to a study of
issues in relation to add-on insurances sold when a car is
purchased. So far the study has identified the following
When purchasing a car, consumers are not focusing on
Premiums are usually charged as a lump sum and may be added to
the car finance amount.
Loans terms may be extended significantly in order for
consumers to be able to afford the add-on insurance product.
Property investment and lending through SMSFs
ASIC has been looking at the one stop shop business models that
provide advice on and assist in:
sourcing and purchasing residential investment properties
obtaining finance to purchase the property
The only property financing which is available to SMSFs is
limited recourse borrowing arrangements (LRBAs). These borrowing
arrangements are more complex than normal borrowing arrangements.
Providing credit assistance in relation to LRBA has involves an
increased risk of breaching obligations under the Credit Act due to
their complexity and there is a risk that financial product advice
may be inadvertently given. The provision of financial product
advice requires an Australian Financial Services Licence (AFSL) or
authorisation under an AFSL.
A final comment
While these areas are currently ASIC's focus, licensees and
their representatives are still required to comply with all of the
obligations under the Credit Act at all times.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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