Via Banking Day:
The Australian Securities and Investments Commission has cautioned lenders not to make too many assumptions about how quickly consumers’ income will recover post-pandemic when making loan application assessments.
ASIC has published a letter it sent to the Australian Banking Association in response to a series of questions from the ABA about the regulatory approach to lending during the COVID-19 crisis.
The ABA is looking to give its members guidance on a range of issues, including the application of responsible lending rules when granting customers relief, the credit code, hardship rules, electronic execution of documents and disrupted property settlements.
Three weeks ago, ABA CEO Anna Bligh wrote to ASIC and asked whether it is reasonable in meeting responsible lending obligations for lenders to make the following assumptions: that the income of employees and small business operators adversely impacted by economic conditions is likely to recover within a reasonable period after restrictions are removed; that any deterioration in asset values during the pandemic is unlikely to be permanent; and that a borrower’s requirements and objectives relating to their COVID-19 impacted financial position are likely to be a prominent consideration in meeting responsible lending obligations.
In response, ASIC said: “We note that the consumer’s income is a key consideration affecting capacity to meet financial obligations. The position outlined by the ABA involves making assumptions about a consumer’s income without any regard to the consumer’s actual circumstances which may indicate that such a recovery is more likely or less likely.
“While we agree that ensuring the ongoing flow of affordable credit is important, it is also important that provision of new credit is not based upon assumed changes where these are unlikely to be met, and which will result in unmanageable debt burdens for consumers.”
Still some sanity then.