to sign off on a deal between Westpac and ASIC whereby Westpac would pay a record fine of A$35 million (about £19 million). As a result of the court’s deci- sion, the fine was cancelled and ASIC is now liable for Westpac’s legal bill too. So, what does this mean for lenders in the UK, not to mention the Australian lending sector? Well, firstly, we must recognise and acknowledge that regu- lators closely watch what is happening in other similar markets to observe reg- ulatory innovation, market reactions, outcomes and judicial opinion. It will surely therefore be a matter on the FCA’s radar to monitor. Affordability has been the number one issue for the lending sector ever since the FCA assumed regulation of con- sumer credit in 2014. Over that period, numerous big lending names have been caught out by the affordability and suitability principles and have been forced out of business either through regulatory action and redress or as a result of huge tidal waves of no-win-no- fee complaints. The rest of the market heard the message loud and clear that affordability must be taken seriously and proper enquiries must be made, rather than simply allowing the cus- tomer to self-declare their income and expenditure (remember self-cert mort- gages prior to the GFC?) There have been numerous attempts to find solutions to the affordability chal- lenge including affordability products launched by the credit reference agen-
cies, and categorised bank statement products which show the customers’ income and expenditure in granular detail. These solutions do indeed add greatly to solving the conundrum, after all, a way has to be found which does not stifle product innovation and cus- tomer service. Consumers want speed of decisioning and convenience; they don’t really want to be sent on a wild goose chase to collate bits of paper. But what the Shiraz and Wagyu case shows us is that the affordability nut has not yet been cracked. There are so many moving parts to consider and so many data sources to interrogate, that even some of the most well-re- sourced and sophisticated lending organisations can inadvertently slip up. If we take the judge’s comments at face value, then he appears to be saying something to the effect of: even if it appears on paper that the custom- er cannot quite afford the loan, con- sumers are capable of modifying their spending habits, cutting their cloth as it were, and ensuring they make their repayments. I can almost hear the cheers and applause from lenders who see this judge’s decision as an indica- tion that consumers need to take more responsibility and the state needs to “nanny” less. It would also appear that that even the regulators are unsure as to where the line should be drawn to meet the threshold of “adequate affordabili- ty enquiries”, after all, both ASIC and Westpac had agreed with one another
that a fine was justified, it was the judi- ciary that stepped in to “draw the line”. One wonders how long it will be before the same test happens in the UK. My advice to lenders is this: afforda- bility and suitability is not a static concept, it is a constantly evolving entity impacted by updated regulatory guidance, emerging consumer trends and by new and innovative affordabili- ty alongside data tools. The message I hear from the marketplace is that the regulator expects you to make use of all the data available in order to make a fully informed decision. Is your process comprehensive and nimble enough to meet the challenges ahead? As a final note, ASIC announced that they now intend to appeal the court’s decision, so we will have to wait and see.
Above: LendingMetrics Founder and Director David Wylie
+61 (0) 8946 79555 | www.lendingmetrics.com
Metrics Monthly | 09
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