The National Consumer Credit Protection Act 2009 (NCCP) sets out obligations for responsible lending. They include assessing whether a credit product or credit limit increase is unsuitable, via gathering information about the consumer and taking reasonable steps to verify that information.
The legislation is designed to protect consumers and ensure ethical and professional standards in the finance industry.
These obligations apply to all regulated consumer loans, including Asset Finance Loans.
To meet your Responsible Lending obligations requires you to undertake three key steps:
Make reasonable inquiries about the consumer’s financial situation, requirements, and objectives.
Take reasonable steps to verify the consumer’s financial situation.
Make a preliminary assessment of whether the credit contract is ‘not unsuitable’ for the consumer.
This article will cover:
Reasonable enquires - what does this mean?
The level and type of inquiries you make for each client will vary depending upon the circumstances, including the client’s own answers to questions within the Needs Analysis/Fact Find. If, during the course of your analysis, you uncover matters that may impact a decision to provide credit to that particular client, you may need to make further inquiries to ensure that the product is not unsuitable.
What is credit assistance?
Defined in Section 8 of the Act, a person provides ‘credit assistance’ to a consumer if, by dealing directly or indirectly with a consumer in the course of, as part of, or incidentally to, a business carried on this jurisdiction by the person, the person:
a) suggests and/or assists the consumer apply for a particular credit contract with a particular credit provider; or
b) suggests and/or assists the consumer apply for an increase to the credit limit of a particular credit contract with a particular lender; or
c) suggest that the consumer remain in a particular credit contract with a particular credit provider; or
d) suggests and/or assists the consumer apply for a particular consumer lease with a particular lessor; or
e) suggests that the consumer remains in a particular consumer lease with a particular lessor.
Who does the NCCP Act cover?
The question to ask is "who is the borrower and what is the loan purpose?"
If the borrower is a company or a trust (other than a strata corporation) then the loan will not be regulated (i.e. it will not be covered under the NCCP Act).
If a borrower is a natural person or a strata corporation and the purpose of the loan is for consumer, personal, domestic then the loan is regulated and requirements under the NCCP Act apply.
Responsible lending disclosure obligations
The responsible lending disclosure obligations are set out in Chapter 3 of the National Credit Act and in the National Consumer Credit Protection Regulations 2010 (National Credit Regulations).
These are obligations to give certain documents to consumers containing information they need in order to understand the credit activities you provide.
You must give these documents to ensure consumers have access to information that will help them make decisions about dealing with you, understand their rights if they do deal with you and understand the contracts that are being offered to them.
Evidencing your responsible lending obligations in Mercury Nexus
Disclosure Document | Responsible lending requirements |
Credit Guide | To be provided to your client when it becomes apparent you are likely to provide credit assistance. The credit guide includes the privacy consent, and you must record when and how you provided it. |
Credit Quote | If you charge your client a fee or your services (commitment fee/service fee/ and any third party fees), you must provide a quote to your client. |
Needs analysis/Fact Find | Completed in Financeable, the needs analysis allows you to evidence you’ve made reasonable enquiries into your client’s requirements, objectives and financial situation. |
Preliminary assessment | The preliminary assessment allows you to demonstrate that the credit contract in 'not unsuitable'. The preliminary assessment must be completed in full with information auto-populated from Financeable and Mercury Nexus. |
Credit Proposal Disclosure | The Credit Proposal Disclosure contains important information relating to the lender/product, fees/charges and commissions you receive or will pay (e.g. referrers). |
Record Keeping
Emails
Diary notes
Text messages
You are required to keep records of how you have acted when providing credit assistance. This includes records of inquiries you make into the consumer’s circumstances, and the consideration, investigation and assessment of the products you recommend. ASIC expects that these records will clearly show how you have complied with the best interests obligations.
Good records will help you to demonstrate that you have complied with these obligations. You may also be subject to legal requirements to keep information relating to other obligations. Keeping good records may help you to demonstrate that you have met more than one set of obligations.
Generally, brokers should keep records that include:
a copy of the responsible lending assessment which may be provided to the consumer, or the documents and information that would be used to prepare the assessment if it is requested;
a copy of the credit guide which was provided to the consumer;
information provided to the credit provider as part of the application process;
outcomes of credit applications;
relevant conversations with the consumer;
information showing that you acted in the best interests of the consumer (including records of efforts made to educate the consumer);
the options and ultimate recommendation you gave and the reasons why (including a detailed description of your decision-making process); and
any potential conflict of interest which you have identified, and the actions you have taken to prioritise the interests of the consumer over your own or those of a related party.
Best practice and practical tips
Prior to lodgement, review the opportunity and ensure your notes evidence a timeline of communication
Conversations held with the customer should be documented by either a note, or a confirmatory email to the customer.
Ensure your record keeping continues throughout the application process.