The Hayne Royal Commission has unearthed extremely important information about financial illiteracy in Australia. While Australia’s financial literacy rate is higher than the average rate of OECD countries, there is still a substantial number of people who lack adequate financial literacy and who remain vulnerable to predatory financial practices. The impact of financial illiteracy on responsible lending and borrowing long after the Royal commission is complete is troublesome and much more needs to be done from a public policy perspective. Professor Guest will explore the issue and propose some solutions.

The Final Report will be laced with recommendations that will continue to impact the industry for years to come and as reforms are embraced the organisations on the frontline will be the first to grasp the success of those reforms. Whatever the Royal Commission recommends, the challenges ahead will require immediate and considerable effort to achieve better consumer outcomes going forward.

The Banking Code of Practice – post Royal Commission

The Hayne Royal Commission Final Report has been scathing of a sales culture that resulted in poor consumer outcomes. The 76 recommendations are meant to address the heart of the culture issues the industry has experienced whilst recommending the enforcement of concrete frameworks to ensure greater accountability. The industry has illustrated self-regulation does not work but does Hayne leave room for the right amount of self-regulation to ensure individual accountability contributes to better outcomes for all, most importantly the consumer?

Recent ASIC commentary coupled with testimony in the Royal Commission have highlighted a stark reality – that the Credit Act contains a black and white requirement to assess the financial circumstances of an individual based on their specific and individual circumstances. However, what this fails to address is that many statistical models exist, including benchmarks and credit scorecards, that come remarkably scientifically close to approximating the circumstances of the individual. This session will look at how the industry, including regulators, should work together to match legal requirements with practical reality.

Credit licensees must comply with the responsible lending conduct obligations in Ch 3 of the National Consumer Credit Protection Act 2009. Credit licensees must not enter into a credit contract with a consumer, suggest a credit contract to a consumer or assist a consumer to apply for a credit contract if the credit contract is unsuitable for the consumer. As a credit licensee, you must decide how you will meet the responsible lending obligations. ASIC’s RG 209 sets out clear expectations for compliance

• Make reasonable inquiries about the consumer’s financial situation, and their requirements and objectives;
• Take reasonable steps to verify the consumer’s financial situation; and
• Make a preliminary assessment (if you are providing credit assistance) or final assessment (if you are the credit provider) about whether the credit contract is ‘not unsuitable’ for the consumer (based on the inquiries and information obtained in the first two steps).

In addition, if the consumer requests it, you must be able to provide them with a written copy of the preliminary assessment or final assessment (as relevant).

We will discuss why different interpretations will arrive at very different outcomes and why this is a major issue for the industry. How do we get an industry as diverse as financial services to agree on a set of rules or one size fits all regulation, when there are clear differences on how each individual lender approaches those regulations? Where is the competitive advantage here and how do we get them to comply?

The Federal Government has announced that it proposes to strengthen ASIC’s powers, and to increase the severity of penalties (civil and criminal) that can be imposed on individuals and corporations, in line with the ASIC Enforcement Review Taskforce’s recommendations. Dr Nehme will talk us through what the new powers and sanctions tools will enable the regulator to do.

The Royal Commission has highlighted the issues with inquiries not being properly conducted for those applying for credit. and Non-disclosure is also a huge issue for the industry. Open Banking is being heralded as the answer to these issues with the greater level of accuracy and access it allows to conduct proper and real-time assessments. We explore the opportunities the access to data will open up for the lender and borrower alike.

Open banking reform will empower consumers and financial institutions alike to make better decisions about the risks they are taking and with whom. Making sense of the useful data and applying it to a process to assess case by case will require technology and analysis to get right. With Comprehensive Credit Reporting we can expect our lenders to benefit from positive reporting to arrive at better consumer outcomes, however, preparing consumers to understand
their own data should be the number one financial literacy task going forward. How are our institutions preparing for this?

• Why ensuring the consumer understands their rights prior to declaring bankruptcy matters
• Consumer actions against brokers

Under the NCCP substantial hardship is not defined, and ASIC’s RG 209 has stated that the meaning of substantial hardship will develop and become clearer as cases come before the courts and judgments are handed down. The regulator has also indicated that consumers should be able to meet a credit contract’s obligations from income rather than equity in an asset. Under the NCCP, it is presumed that, if a consumer must sell their principal place of residence to meet their financial obligations under the credit contract then this constitutes substantial hardship. Consequently, if a consumer establishes that they could only meet the repayments by selling their home, then the onus is on the credit assistance provider to establish that the credit contract is not suitable. The Hayne Royal Commission Final Report has also recommended ‘no interest’ in drought periods for farmers but will this practice lead to restrictions on lending for farmers? Will data assist banks in determining who to lend to and therefore deem a borrower unsuitable for a loan