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Responsible Lending Laws to Change

Responsible lending laws expected to change as ASIC updates its guidance.

After the Federal Court’s recent dismissal of ASIC’s responsible lending case against Westpac, it would be likely to expect the laws on responsible lending will change and that the National Consumer Credit Protection Act 2009 (NCCP) will be amended.

Westpac was found not to have breached responsible lending laws by using the automated Household Expenditure Measure (HEM) benchmark to estimate household expenditure in up to 262,000 home loan approvals.[1]

The finding was contrary to the strong criticism of the benchmark by ASIC and the failure of banks to make what ASIC considered ‘reasonable inquiries’ into household spending received during last year’s Banking Royal Commission. The assessment stemmed from the HEM’s tendency to underestimate household expenditure as it excluded debts such as HECS, mortgage payments and non-government school fees.[2]

In further response to the Hayne findings ASIC had earlier this year begun updating Regulatory Guide 209 Credit licensing: Responsible Lending Conduct (RG).[3] In February ASIC released Consultation Paper 309 seeking feedback which ended on 20 May 2019 and held public hearings in August on the issue.

The consultation brought up a number of key issues relating to the difficulties in assessing spending and where the baseline will fall, along with the application of the consumer data right which was introduced in Australia in 2017. Banks argue that they already adhere to tighter lending requirements and that there is a need to maintain flexibility and provide fast loan application processing times, or economic growth will be stifled.

Consideration should also be given to the Governments recently released roadmap “Restoring Trust in Australia’s Financial System[4] which outlines the implementation of the Royal Commission recommendations. When considering the NCCP, the Government indicated that there would be ‘no change’. This may need reconsidering after the recent findings.

It is of course unlikely that ASIC or the Government were expecting the recent Federal Court result and they will have to pivot their drafted guidance accordingly.

[1] Australian Securities and Investments Commission v Westpac Banking Corporation (Liability Trial) [2019] FCA 1244

[2] Tim Boyd, ASIC Loses Landmark Case Against Westpac, Australian Financial Review, 17 August 2019

[3] ASIC, RG209 Credit Licensing: Responsible Lending Conduct, November 2014

[4] The Australian Government the Treasury, Restoring Trust in Australia’s Financial System: Financial Services Royal Commission Implementation Roadmap (Commonwealth of Australia 2019), August 2019


This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.

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