In a recent speech, Peter Kell, Deputy Chairman, Australian Securities and Investments Commission outlined ASIC’s priorities in the consumer credit market as:

• advertising
• responsible lending
• loan fraud
• add-on insurances, and
• property investment and lending through self-managed superannuation funds (SMSFs).

In the area of advertising Mr Kell said ASIC has stepped up its use of infringement notices and enforceable undertakings for instances of false or misleading advertising. ASIC is also looking at taking more civil penalty actions in this area.

With respect to responsible lending he stressed the importance of keeping records that support the assessment of unsuitability and demonstrate that licensees are meeting responsible lending obligations.

He also emphasised:

• having discrete processes to make inquiries about, and take reasonable steps to verify, consumers’ variable expenses.
• ensuring the use of adequate buffers to allow for changes to financial circumstances (e.g. interest rate increases, income/expense fluctuations) when assessing a consumer’s ability to make repayments without
  substantial hardship.

Mr Kell identified add-on insurances as an area of potential conflict of interest.

He said ASIC is currently undertaking a scoping study of issues in relation to add-on insurances sold in the motor vehicle sector, including consumer credit insurance, gap insurance, and tyre and rim insurance.

He said ASIC has already identified a number of issues, including:

• insurance purchased through a car yard where the insurance product(s) s not the consumer’s focus – it is a subsidiary decision after deciding on the car to purchase and which finance to obtain, and
• premiums are usually charged as a lump sum, and may be added to the loan amount.

In addition to potential issues related to management of conflicts of interest in such situations, there may also be responsible lending issues in relation to the assessment of the consumer’s requirements and objectives – for example, instances where loan terms are significantly extended in order for consumers to be able to afford various add on insurances.

More on ASIC’s concerns with add-on insurance

Mr Kell said limited recourse borrowing arrangements for SMSFs are much more complex than a normal home loan, and credit providers therefore need to be aware of the additional risks associated with such transactions including breach of credit legislation and inadvertently providing unlicensed financial advice.