Responsible Lending Changes and BID part 1
Updated
by
Caroline Pollard
Key points from SFG Compliance webinar Wed 14th and Thurs 15th Oct 2020
Responsible Lending Changes
Changes will be made 1st Mar 2021, until then RL obligations remain the same. From 1st Jan 2021, RL will be joined by BID.
The simplification proposal to improve the flow of credit is summarised into the following :
- Removing the RLOs from the Credit Act, with the exception of small amount credit contracts and consumer leases where increased obligations will be introduced;
- Ensuring authorised-deposit taking institutions (ADIs) continue to comply with APRA's lending standards; and
- Adopting key elements of APRA's lending standards and applying them to non-ADIs.
The onus is now on ‘borrower responsibility’ rather than ‘lender beware’. Allowing lenders to rely on the info provided by borrowers, unless there are reasonable ground to suspect otherwise.
Existing expectations - you need to apply your own judgement in determining what is reasonable. Ensure accurate income and that it can be collaborated by payslips, bank statements etc.
BID obligations
- Ensure you present more than one option to a customer (prove that you have looked at other options, even if nothing else fits, explain why)
- Prioritise consumers preferences for different products or credit providers
- Must assess foreseeable changes in circumstances, best interests is a current point in time assessment - which is good news as you won’t be penalised if something changes for the worse 3+ years down the track.
- Failure to investigate and consider the lowest cost option may suggest non-compliance. Evidence is required to support a higher cost option. Note, lowest rate may not dictate lowest cost and other features will impact cost.
- Offset accounts - explain to the customer why this may not be in their best interest (i.e. they won’t be able to save much and therefore as it is a higher cost product in general, this may not benefit them). If customer is adamant about choosing that product feature, as long as you have notes to prove you have advised best interest to client, you will be fine.
- Explain product risks and benefits, provide info in a manner that is fit for purpose of the consumer.
- Before recommending a package product, you should compare other packages available to the consumer, and to stand alone home loans without other packaged products.
- You must not act to further your interest where you have multiple roles, ie. if you are also a financial planner, real estate agent, accountant. You must advise the client this will be a two-step transaction and that they do not have to use both of your services. Discuss any conflict of interest with the customer.
