Responsible Lending is not easy. With the outcome of the Banking Royal Commission also to take into account, the process of calculating affordability for a consumer is about to change.
Lend Assess is a unique system that already takes all of this into account. We have spent years in the Credit Industry predicting a change that would require a greater depth of understanding of a consumers spending. Lend Assess not only adds new elements to an assessment to add those levels of understanding, but it also takes all of those numbers and does the math to determine if the customer has the necessary funds available to afford a contract. The system creates such an in depth assessment that you have a very clear picture of whether the customer is in a position to afford the contract. Because each element of the customer's income and expenses has been taken into account their is nothing left unseen or not included in the calculations that could create doubt about the customers's ability to afford it. This means you have a much stronger connection to your Responsible Lending Obligations.
It may then come across the system is intense and long-winded and customer's aren't going to like it. The system is complicated in theory but is user friendly - you avoid having to do any of the math and it then just becomes a simple discussion between the customer and yourself about their financial position. The Bank Royal Commission has confirmed that this level of detail will be the way forward for credit assessments.
If you are in the business (or getting into the business) of consumer credit contracts then you will be aware of ASIC as the regulatory body. They define Responsible Lending as "..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" (Chapter 3, National Consumer Credit Protection Act 2009). The penalties for not following the Responsible Lending Obligations are expensive - so it is something that you want to avoid at all costs. Previous fines issued by ASIC for the breach of Responsible Lending Obligations have been in the millions of dollars.
While it is clear by that definition what the regulatory body considers to be Responsible Lending - there are very few guidelines or hints on policies or procedures that should be implemented in order to make sure you are compliant. The regulators are not prescriptive, so it is often up to the credit companies to trial and error different policies to make the regulators happy - this can be a costly affair when you take into account the cost above of getting it wrong. This can make for a very stressful industry with so much uncertainty as to whether you are doing it right and what will happen if you get it wrong.
On top of all of this we have the outcome of the Banking Royal Commission which is ultimately going to change the way that we assess a customer's affordability. It won't just be a simple income minus expenses calculation anymore - it is going to require new levels of classification and probing to determine exactly what the customer spends their money on. If you aren't currently thinking about this level of assessment then this is where Lend Assess can help.
Responsible Lending is crucial to get correct! At the heart of it, it is about protecting the customers, which is important to make sure so that no credit company is adding any stress on to an individuals day to day living. If you plan on building a company with some level of Social Responsibility - then Responsible Lending will need to be the key to the business. If Responsible Lending is not high on your list of priorities then think about what happens if you don't select the current customers. If you select the wrong customers then you are going to be left with a very poor quality book of contracts - most likely with a high level of arrears, because the customers were never in a position to afford the contract. You end up never being able to create a thriving business because despite your efforts to write contracts, no money is coming in. On the other end of the spectrum - even if you make all attempts to select the correct customer - if you do not follow the Responsible Lending Obligations then you can fear the consequences from the regulator.
It is absolutely critical that you make sure your Responsible Lending Obligations are met.
Take it from some people who have been in the Credit Industry for over 10 years and have seen businesses rise and fall through failed attempts to meet their Responsible Lending Obligations. You absolutely DO NOT want to ever be in breach of your Responsible Lending Obligations. With the changes that are coming about to the way we assess customers thanks to the Banking Royal Commission, it is going to be more critical then ever to ask all of the right questions and make sure of an in depth enough analysis to satisfy the regulators.
If the regulator finds that you have breached your Responsible Lending Obligations - the fines have been in the millions of dollars. On top of that you are publicly outed as being in breach of your obligations and your company can be put under an Enforceable Undertaking to ensure ongoing compliance. On top of that fine can then be hundreds of thousands of dollars of contract cancellations and refunds back to customers for all effected contracts. Worst case scenario is that you loose your credit licence - and that is the end of your business.
Not taking the Responsible Lending Obligations seriously not only effects your customers and your contract book but also your bottom line, business procedures as a whole and possibly the ability of your business to keep running altogether. You play a VERY RISKY game if you choose not to be very vigilant with your Responsible Lending Obligations.
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