All credit licensees must adhere to the responsible lending conduct obligations as required by Chapter 3 of the National Consumer Credit Protection Act 2009 (National Credit Act). These obligations apply to both credit providers (i.e. lenders) and credit assistance providers (i.e. mortgage and finance providers).
The objective of the responsible lending obligations is to ensure that the credit contract or lease is ‘not unsuitable’ for the consumer. The National Credit Act defines situations where a contract will be unsuitable to include where:
- the consumer is unable to meet the repayments or can only comply with substantial hardship
- the contract does not meet the consumer's requirements and objectives.
The responsible lending obligations also require that credit assistance is not provided to a consumer by:
- suggesting they remain in an unsuitable credit contract
- assisting them to enter into, or increase the limit on an unsuitable credit contract
- suggest the consumer apply for, or remain in an unsuitable consumer lease
- assisting the consumer to enter into a consumer lease that will be unsuitable for them.
The compliance processes that need to be implemented to comply with these obligations will depend on the business model and credit activities the licensee is undertaking.
This section has been developed to help you understand the responsible lending obligations for credit assistance providers.
The key responsible lending obligations have been broken down into three steps:
- Make reasonable inquiries about the consumer
- Make a preliminary assessment whether the proposed credit contract is not unsuitable for the consumer
- If requested, provide a written assessment that the credit contract is not unsuitable
Chapter 3 of the National Credit Act also requires a number of obligations relating to documents that must be provided to the consumer at particular times during the credit process.
It should be noted that the National Credit Act does not define ‘substantial hardship’ nor does ASIC provide any guidance. Rather, ASIC have advised that they expect the law about the meaning of ‘substantial hardship’ will develop as cases come before the courts.