New responsible lending rules explained

The National Consumer Credit Protection Act has imposed responsible lending obligations on lenders and their credit representatives for the first time. The aim is to ensure that a consumer does not end up with a credit contract that is unsuitable.

So, the lender or representative must make reasonable inquiries about the consumer's requirements and objectives, and his or her financial situation. The lender must take reasonable steps to verify the consumer's financial situation and must make an assessment about whether a credit contract is “not unsuitable”.

An unsuitable credit contract is one that does not meet the borrower's needs and objectives, or is one the consumer would struggle to repay. It is no longer possible to have a self-certified loan where the consumer does not provide the credit provider with any financial information.

A credit provider will not meet its responsible lending obligations if it does no more than obtain a declaration from the borrower that the borrower believes he or she can afford the loan repayments. The Australian Securities and Investments Commission has told lenders that the requirement to verify information is “scalable”. For a small personal loan the credit provider would need to make less detailed inquiries than for a mortgage.

Source: Banking Day