Fintechs back lending reforms but banks need to be aware of "buyer beware"
The government’s decision to relax the lending criteria has been backed by a number of fintechs and neo lenders but one warned a cautious approach is still needed.
"We are very pleased with the decision from the government to change the responsible lending law. It clearly shows they are actively thinking about this sector and we agree this will provide consumers with more choice, and encourage them to seek out a better deal by reducing the barriers in switching credit providers,” Wisr CEO Anthony Nantes said.
But while Nantes is eager to see what the responsible lending law changes will bring to the sector, he emphasised Wisr will always “put the customers best interests first and continue to deliver on our purpose around financial wellness for Australians."
Similarly Lumi CEO Yanir Yakutiel, described the relaxation of responsible lending laws as a positive – allowing banks and institutions to make decisions based on the merit of applications as opposed to being “shackled by regulations”. He added that increasing access of credit into the market will be beneficial for the Australian economy.
The views echo those of Australian Retail Credit Association's Mike Laing who believes that lenders will still remain prudent if the new laws are passed.
Here he notes that despite the legislative overhaul, standards will still underpin responsible lending. Assuming the rules pass, it’s not like we are going to move from a highly regulated environment to the wild west with no regulation.
Laing added the prudential regulator already has its own standards and guidance in relation to credit risk management which also complements ASIC’s guidance. Furthermore, lenders will still be required to have credit licenses issued by ASIC while the role of AFCA to address any potential complaints will remain.
Laing hopes that potential reforms around responsible lending will also ensure greater certainty noting that the Westpac case with ASIC highlighted that there was still uncertainty around the obligations around responsible lending. Laing also believes the role comprehensive credit reporting will be amplified – in fact APRA was one of the earliest supporters of CCR.
Many lenders were doing quite exhaustive expense analysis and expense classification in assessing their potential borrowers under the current responsible lending laws. Therefore, they will have to rely on measures like CCR now to a much greater degree.
“It is in the best interest of lenders to lend in a responsible way and ensure they lend to people who can afford to repay their loans.”
By applying CCR, lenders can identify the current debt levels and repayment history of potential borrowers. According to Laing with or without responsible lending obligations. CCR is still going to play a critical role within the lending process.
“In many respects, CCR is going to play an even greater role. Many lenders were doing quite exhaustive expense analysis and expense classification in assessing their potential borrowers under the current responsible lending laws. Therefore, they will have to rely on measures like the CCR now to a much greater degree.
Many lenders were doing quite exhaustive expense analysis and expense classification in assessing their potential borrowers under the current responsible lending laws.
Therefore, they will have to rely on measures like the CCR now to a much greater degree. From a CCR perspective, this will make the credit reporting system even more vital. Laing would also like to see the hardship legislation passed and ideally CCR to include a broader range of data.
The planned reforms also put the onus on the borrower to make the right decision. As highlighted earlier, Laing believes that lenders will continue to exercise responsibility in their lending decisions, adding that promoting awareness among borrowers to be prudent with their decisions was always emphasized through ARCA’s CreditSmart initiative.
“We have said that it is in the consumer’s interest to take care and only use the credit they really need and can afford. We have always promoted that message.
As with any reform, ARCA will be waiting for the draft legislation and engage with any consultation process. As government releases new policy and legislation we will continue to consult and engage with our members".