Unregulated lenders, HEM and open banking: industry concerns in ASIC’s responsible lending plan

  • By Christine St Anne

Submissions to ASIC’s consultation on responsible lending have highlighted concerns that over an overly prescriptive approach to the framework could push consumers to unregulated lenders such as those in the buy now pay later sector. 

On Monday, ASIC also announced that it would hold public hearings during August as part of the wider public consultation on its guidance on the responsible lending obligations - the move signaled by its chair late last month

The consultation began in February this year with the corporate regulator receiving 72 submissions to date. 

The Australian Banking Association acknowledged that there has been increased competition in consumer credit with the emergence of businesses such as the BNPL schemes. Therefore, a commitment to balanced regulatory approach responsible lending is needed. 

“More than ever there is a need for competitively neutral regulation,” the ABA aid.

The industry lobby group said the benefits of this competitive tension need to be considered closely as it is concerned that ASIC’s proposal to take a more prescriptive approach to some aspects of RG 209 may negatively impact competition by placing unregulated players at an advantage. 

Here the association sees that consumers could be incentivized to access credit like products from providers that are not regulated under the National Consumer Credit Protection Act. 

Similarly, ANZ questioned that an overly prescriptive approach to responsible lending imposed on regulated licensees alone could have the unintended consequence of encouraging consumers towards unregulated lenders, such as the BNPL lenders, who are able to offer more streamlined and less onerous application processes. 

“This could distort competition in the credit market and create potentially negative outcomes for consumers looking to access ‘quick and easy credit’, which nonetheless may be unsuitable for them,” ANZ said. 

Questions were also raised on ASIC’s move away from using the popular HEM benchmark. 

Westpac said that benchmarks can be a useful tool in helping determine whether information provided by the customer is plausible adding that the bank uses an income-based HEM which is reflective of a modest lifestyle when it considers an appropriate benchmark. 

“Changes to the use of benchmarks and HEM have the potential to heavily impact the availability of credit to customers,” the bank argued.

Technology neutral 

For instance, it said that the proposed approach may restrict the capacity of licensees to consider a customer’s ability to alter future spending habits or may disproportionately impact customers with actual monthly expenses lower than the benchmark.

“In addition, the business and technology costs associated with this proposed approach would likely increase the cost of credit for customers, “Westpac added in its submission. 

NAB said that it considers that benchmarks, when properly calibrated, periodically reviewed and combined with appropriate customer inquiry, provide for a prudent and consistent manner for understanding and assessing a customer's expenses at scale.  

The move to an open data framework was another issue raised in the submissions with CBA agreeing with ASIC that certain developments such as open banking and comprehensive credit reporting allowing businesses to better understand the financial situation of a consumer. 

However, CBA said that guidance should continue to be technology-neutral and ensure that certain consumer segments are not inadvertently limited by their choice in sharing information. 

The bank added that guidance provided should include steps on how businesses can “reasonably” access customer data for the purpose of inquiry and verification. 

The banks also expressed concerns around innovations such as screen scraping as a way to access information from customers. 

“CBA believes such services to be “highly risky” due to data and privacy issues with the bank adding that it believes “the risks associated with such tools are often unknown or unclear to the customer and as such does not support, the use of these services”.