Lending is a massive part of the financial services industry, and, in turn, the general economic framework of Australia. As a credit licensee, there are existing regulations within the industry that you must comply with. One such obligation is the idea of responsible lending under Chapter 3 of the National Consumer Credit Protection Act.
Hence, as a credit licensee, you are obliged to provide only lending services to individuals and businesses where it is suitable for them. Precisely, a credit licensee must not suggest credit contracts, assist during the application of a credit contract, or enter into credit contracts with businesses or individuals where it is unsuitable having regard to their financial situation.
Also, for a credit contract to be unsuitable, it must fall under any of the categories above:
- The consumer cannot satisfy the repayment requirement
- The consumer can fulfil the repayment obligation although with substantial or significant hardship
- The credit contract cannot satisfy the objectives and credit requirements of the consumer
For you to meet this requirement, you must take certain actions as a credit licensee. These actions cut across the following:
As a credit licensee, it is important to make reasonable inquiries concerning consumers’ financial situation. This is to ensure that they are suitable to match for prospective lending agreement. Also, questions about consumers; objectives and requirements are also fitting.
As a credit licensee, it is crucial to verify consumers’ financial situation. This is an extension to the need for inquiries. Note that this is important because consumers might overstate or misstate their financial position in a bid to get a loan that would otherwise be unsuitable for them.
It is now your responsibility to verify the information provided during inquiries. It would be best to request documentary evidence that establishes consumers’ financial situation.
Preliminary or Final Assessment
As a business looking to discharge your responsible lending obligations, it is necessary to make either an initial assessment or a final assessment. A preliminary assessment is relevant in cases where you are not the credit provider but instead only rendering credit assistance to consumers. On the other hand, you will need a final assessment where you represent the credit supplier.
Note that this assessment will identify the suitability or otherwise of the credit option or contract. Also, you must present this assessment in a written format. This is because you are obliged to provide the report to a consumer where they request for the same.
Also, to discharge this obligation, inquires, verification, and assessment must concern the following areas of the consumer’s finances.
- Existing debts
- Employment situation
- Living situation
- Variable and fixed expenses
- Number of individuals that the consumer is financially responsible for
- Foreseeable changes or alterations to financial situations
- Other relevant financial details
DISCLAIMER: The data provided above is merely a GENERAL MATERIAL for your use and consideration. They do not, and should not in any way, be considered as financial advice or recommendation from CSHTA. Hence, we shall and do not take liability for faults or mistakes in the presentation or interpretation of the facts highlighted herein. Also, we do not accept responsibility for any analysis and commentary on data present within the public domain. We advise you to consult with an accountant or financial advisor if you need specific recommendations concerning your financial needs or circumstances.