At QED Risk Services, we have always emphasised the importance of detailed data gathering in demonstrating compliance with the Responsible Lending Obligations.
The September 2016 release of ASIC Report 493 Interest-Only Loans confirms what we have been preaching all along.
Key findings of the report include
- More than 20% of cases reviewed where there was no statement summarizing how the interest-only feature specifically met the consumer's requirements and objectives.
- No record of the basis for the specific interest-only period applied for and what was intended after the interest-only period concluded
- General comments such as refinancing to a lower rate do not sufficiently demonstrate how the selected Interest-Only home loan met the consumer's requirements and objectives
Most of our clients have already been doing this but if you have not, this is what you can do to avoid falling foul of the NCCP regulations.
- Include a logically set out and detailed narrative of the consumers' short and longer term requirements and objectives, which draw together the consumers' responses to various questions. This includes the reasoning behind your product selection.
- Ensure all questions in the fact find are answered, including indicating if a response is 'nil' or 'N/A'.
- The risk of not being able to demonstrate compliance with the responsible lending obligations is reduced if the consumer is given a document summarising your understanding of the consumer's requirements and objectives. While it is not required by law, you could provide a preliminary assessment for this purpose.
The most important take-away from this report is "Good policy and practice for recording inquiries into consumers' requirements and objectives for all loans, not only Interest-Only loans, can mitigate the risks of being unable to demonstrate compliance with the NCCP Responsible Lending Obligations."