Should responsible lending
laws be simplified or scrapped?
The Treasurer’s proposal is that responsibility for
consumer lending be transferred from ASIC to APRA and
that consumer loans be governed more simply under APRA’s
lending standards. (ASIC is the Australian Securities and
Investments Commission and APRA is the Australian Prudential
The proposal is controversial. The Treasurer says the
transfer and simplification of lending laws will remove
‘unnecessary barriers to the flow of credit’ while consumer
advocates say it will be ‘open slather’ for predatory
Currently, ASIC administers the National Consumer
Credit Protection Act 2009 (NCCP) and publishes a
Responsible Lending Regulatory Guide (RG 209) which is a set
of rules for consumer credit providers.
ASIC pursues credit providers for breaching the
Responsible Lending Conduct provisions of the Act, as
illustrated in the Federal Court proceedings of
Australian Securities and Investments Commission v Westpac
Banking Corporation  FCAFC 111.
But ASIC leaves loan disputes to the Australian Financial
Complaints Authority (AFCA), which operates a dispute
resolution scheme for financial services, which is funded by
In this article, we review a selection of decisions
published by AFCA upon disputes relating to Home Loans and
Investment Property Loans to determine whether the
Responsible Lending rules should be simplified or scrapped
for those loans.
AFCA decisions on Home
Loans (also called mortgages)
These decisions involve loans made by a bank or other
credit provider to fund the purchase of a property or
refinance a property loan; generally secured by a registered
mortgage over the property being purchased.
Case no 485337 13 March 2018 (construction loan)
The Applicant borrowed a construction loan of $230,000 to
build a house.
The Applicant complained that the lender had caused a
delay in construction because when it preapproved the
construction loan it did not specify that an executed
building contract was an outstanding condition. This
resulted in a five month delay.
AFCA found the loan was a suitable credit product for the
purpose of RG 209.18(a). But the lender was liable for the
delay and AFCA recommended compensation of $29,620.40.
Case no 539014 26 September 2019 (debt consolidation)
The Applicant borrowed a home loan of $475,000 from the
bank to consolidate debts.
The Applicant complained that the lender made an
unaffordable loan because it did not make reasonable wider
enquiries as to the Applicant’s financial situation,
requirements and objectives as was required when considering
debt consolidation under RG 209.
AFCA rejected the complaint because the bank had acted
responsibly when it relied on the Henderson Expenditure
Measure to find that the loan was affordable. But AFCA
recommended the lender compensate the Applicant for
$26,306.82 for money advanced to pay off a credit card which
was not in her name, and $4,000 for stress and
Case no 612705 12 December 2019 (loan refinance)
The Applicants refinanced their home loan of $460,000
with the ANZ bank. The new loan was a 30 year principal and
interest loan. The amount was the same as the old loan but
at a lower interest rate of 4.17%, compared with 4.64% for
the old loan, and so was more affordable.
The Applicants complained that a 30 year loan was
unsuitable because of their ages – the male 55 years, the
female 47 years. Specifically, their complaint was that the
loan did not meet their requirements and objectives as
required under RG 209 because they would be forced to sell
and downsize in the next 10 to 15 years, either because
their post retirement income would not service the loan or
the loan repayments would cause substantial hardship.
AFCA rejected the complaint and said that RG 209.110 had
been complied with because the lender had made enquiries
about the borrower’s requirements and objectives: The loan
would not cause hardship because the borrower’s future plans
were to sell and downsize in transition to retirement. Also,
the borrowers had substantial home equity (the market value
of the house was $1.675 million) and they had
superannuation. However, AFCA found that the bank should not
have issued credit cards to the borrowers and recommended
that it not to charge interest or fees on the credit cards
and pay $1,000 for stress and inconvenience.
Case no 692775 29 May 2020 (fixed interest)
The Applicant borrowed a home loan of $475,000 from the
National Australia Bank. The loan was interest only for the
first five years at a fixed interest rate of 4.99% pa. The
Applicant refinanced after four years and the bank charged a
break cost of $9,626.68.
The Applicant complained that the bank did not adequately
disclose the break cost.
AFCA rejected the complaint. The bank had clearly
disclosed that the interest rate would be fixed and provided
information about the method of calculation of break cost in
the home loan contract. This satisfied the bank’s obligation
to be clear and transparent under RG 209.
Case no 615207 17 June 2020 (bridging loan)
The Applicant obtained a bridging finance of $606,125 in
March 2018 through mortgage brokers from a private lender
for a term of six months, secured by an existing residential
property and the residential property being purchased. She
sold one property and was being forced to sell the second to
repay the loan. The interest rate was 9.5% pa (non-default)
and 15% pa (default).
The applicant complained that the loan should never have
been approved because she did not have capacity to service
the loan, and the loan was only made available because the
brokers had classified it as a business loan. If it had been
assessed under the responsible lending guidelines, it would
have been an unsuitable and inappropriate loan.
AFCA accepted the complaint. AFCA said that it was a
consumer loan and that the brokers did not make reasonable
inquiries to assess whether the loan was suitable for the
complainant or appropriate to her needs as required under RG
209. AFCA recommended that the brokers pay the total fees
and interest on the loan of $257,528. No recommendation was
made against the lender because they were not a member of
AFCA decisions on
Investment Property Loans
The buyer borrows funds usually from a bank or other
financial institution to purchase an investment property.
The loan is generally secured by a registered mortgage to
the lender over the investment property.
Case no 395966 3 March 2016 (company loan)
The Applicant purchased two new investment properties in
a Queensland mining town in 2012, with loans which totalled
The Applicant complained that the lender should have
realised that they could not service their loans and
therefore is not entitled to commence recovery action.
AFCA rejected the complaint - the lender had properly
considered the income streams and serviceability for both
the properties and the guarantors. The lender was not
obliged to assess the loan applications under the NCCP or RG
209 because the borrowing entity was a company, even though
personal guarantees were given.
Case no 405931 8 March 2016 (property risk)
The Applicant purchased two investment properties in a
mining town in 2011 & 2012, with loans from the lender.
The Applicant complained that the lender failed to take
into account that the purchase was a speculative venture,
not a relatively secure investment.
AFCA rejected the complaint – the lender was not obliged
to consider the investment risk associated with the
properties. The NCCP and RG 209 were satisfied because the
rental income had been discounted by 20% in accordance with
good industry practice and an interest rate buffer of 1.5%
was included in the serviceability calculation.
Should responsibility for
consumer lending be transferred to APRA?
The Treasurer’s criticism is: “What started a decade ago
as a principles based framework to regulate the provision of
consumer credit has now evolved into a regime that is overly
prescriptive, complex and unnecessarily onerous on
The Treasurer’s criticism has force in that ASIC has been
treating the Guide (RG 209) as a set of rules to be
followed, not as a reference guide for lenders.
ASIC’s bias towards more regulation is clear in its media
release which it issued to announce it would not appeal the
Westpac responsible lending decision:
“ASIC will review its updated regulatory guidance RG
209 (Credit licensing: responsible lending conduct)
and will consider what implications the Federal Court
decision has for that guidance.”
It is therefore a good move to transfer responsibility
for RG 209 from ASIC to APRA because ASIC’s approach to
Responsible Lending is to add rules, which is not justified
by the decisions reviewed in this article.
Should Responsible Lending
Regulatory Guide (RG 209) be simplified or scrapped?
The AFCA decisions reviewed in this article use RG 209 as
a reference point to strike balance between ‘lender beware’
and ‘borrower responsibility’.
To scrap the Guide would remove useful guidance to
But RG 209 is complex. It contains 271 paragraphs. A
simplified Guide would give lenders discretion, and would be
in line with what is contained in the Guide:
- It is up to the financial firm to decide what
inquiries are reasonable for it to make in order to meet
its responsible lending obligations (RG 209.28).
- The obligation to make reasonable inquiries is
scalable. The lists of factors included in RG 209 are
not designed to be a checklist that financial firms are
expected to follow in each instance (RG 209.29).
In summary, the proposal to transfer responsibility
for Responsible Lending from ASIC to APRA is a good move,
but the Responsible Lending Guide should be simplified, not
The proposal is proposed to be implemented through a
change to the Credit Regulations and will commence from 1