Consumer credit industry, beware! ASIC is targeting the responsible lending laws across the credit industry. Recently, payday lender Nimble Australia Pty Ltd (Nimble) failed to meet its obligations and now must:
- refund over 7,000 customers more than $1.5 million;
- make a $50,000 contribution to Financial Counselling Australian; and
- undergo external compliance of their current business operations.
What are the responsible lending provisions?
Under the National Consumer Credit Protection Act 2009 (Cth) (NCCP), credit licencees must meet responsible lending obligations, which include:
- make reasonable inquiries of the consumer about their requirements;
- make reasonable inquiries of the consumer about their financial situation;
- take reasonable steps to very consumer’s financial situation; and
- assess whether the credit product is unsuitable for the consumer.
These obligations apply to credit providers (lenders such as banks, credit unions, small amount lenders and finance companies), lessor’s under consumer leases and credit assistance providers (such as mortgage and finance brokers). This is not an exhaustive list. If you provide credit in the course of your business, you could be captured by these obligations.
Where did Nimble go wrong?
ASIC found that Nimble failed to meet its responsible lending obligations. Its three key breaches were:
- relying on algorithms to provide loans which did not properly assess the financial circumstances of many consumers;
- failing to identify multiple payday loans within a short period of time; and
- failing to make proper inquiries of consumer’s requirements and objectives.
How can you avoid Nimble’s mistakes?
Businesses that provide credit to customers to undertake an internal review of its needs to comply with the NCCP. If NCCP needs to be complied with, businesses need to ensure the correct processes and systems are in place and credit licencees need to consider the individual situation of each borrower and rigorously and continuously test any automated processes in place.
Failure to do so can result in an ASIC investigation for breach of the NCCP and a hefty fine!
Bryks Lawyers has extensive experience in undertaking NCCP audits and preparing documentation for compliance for its clients that issue credit. Start the conversation today!
