Removing responsible lending obligations from the National Consumer Credit Protection Act is no simple business, and nonsensical as well.
The NCCP (Supporting Economic Recovery) Bill 2020 hacks into Chapter 3 of the 2009 Credit Act, removing RLOs for ADIs, and imposing lending standards for non-ADIs, “as part of the new risk-based regulatory framework for consumer credit, based on similar obligations to those imposed on ADIs,” as the Explanatory Materials for the Bill says.
The government outlined its shift in policy six weeks ago, aggravating the consumer lobby and earning praise from lenders.
The policy lever taking the place of responsible lending obligations is the force of APRA’s forthcoming prudential standard APS 220 Credit Risk Management, related to an institution’s lending standards and borrowers’ capacity to repay.
To ensure “appropriate consumer protections remain in place”, the best interests obligations already legislated for mortgage brokers are extended to all credit assistance providers.
The Bill will amend the Credit Act to allow the Minister to make standards, “specifying requirements for a credit licensee’s systems, policies and processes relating to certain non-ADI credit conduct”.
The Explanatory Materials say these requirements will be “system-level obligations rather than focusing on individual loans engaged in by licensees. This reflects the government’s decision to move away from a prescriptive framework for lenders and borrowers and will support risk-based lending attuned to the needs and circumstances of the borrower and credit product.”
“Non-ADI credit conduct”, in the jargon, will be subject to non-ADI credit standards made by legislative instrument.
In practice these will be similar to those imposed on ADIs by APRA.
Treasury also released the draft Non-ADI Credit Standards Determination 2020 “to ensure non-ADI credit providers establish, maintain and implement systems, policies and processes directed toward credit being provided where the licensee has assessed that a borrower will have the capacity to repay any credit provided”.
APRA, Treasury said, plans to add a sentence to APS 220 that would require an ADI to assess an individual’s capacity to repay credit “without substantial hardship”.
The measures will commence on 1 March 2021, subject to the passing of legislation.
Public consultation on the exposure draft and explanatory material will close on 20 November 2020, or two weeks from tomorrow.