Responsible Lending After the Royal Commission

Key takeaways

• Three steps: inquire, verify, assess for unsuitability.
• The obligations survived - the 2020-21 repeal bill did not pass.
• Best interests duty for brokers was added on top, from January 2021.
• HEM is a benchmark, not a substitute for asking about your actual expenses.

What do the obligations actually require?

Three things, in order, before providing credit assistance or entering a credit contract.

1. Make reasonable inquiries about the consumer's requirements, objectives and financial situation.
2. Take reasonable steps to verify that financial situation - payslips, statements, tax returns, or data feeds.
3. Assess whether the credit contract is unsuitable. It is unsuitable if the consumer could not repay without substantial hardship, or it does not meet their requirements and objectives.

The scaling principle matters: what is "reasonable" varies with the size and complexity of the credit and the potential consequences for the consumer. A $2,000 personal loan and a $900,000 mortgage do not warrant the same depth of inquiry.

What did the Royal Commission change?

Less than people remember about responsible lending specifically, and more about everything around it.

Then in 2020 the government proposed repealing the responsible lending obligations for most lenders, shifting to a lender-beware model with APRA standards doing the work. The bill did not pass the Senate and was ultimately abandoned in late 2021. The obligations remain in force.

What does this mean when you apply?

It explains the paperwork. A lender asking for three months of transaction statements and querying a recurring payment is not being obstructive - it is discharging a verification obligation that was tested in court and found wanting when done superficially.

It also explains why the Household Expenditure Measure is no longer sufficient on its own. HEM is a benchmark of modest spending, and lenders now generally use the higher of your declared expenses and the benchmark, with declared figures subject to verification against your actual transactions.

For borrowers, the practical response is to tidy the three months before applying: reduce discretionary spending, close unused credit card facilities (the limit counts, not the balance), and be honest about expenses rather than optimistic, because the statements will show the truth anyway.

Frequently asked questions

Were responsible lending laws repealed?

No. The government introduced a bill in 2020 to repeal them for most lenders, but it did not pass the Senate and was abandoned in late 2021. The obligations under the NCCP Act remain in force.

What does "not unsuitable" mean?

It is the statutory test: credit is unsuitable if the consumer could not repay without substantial hardship, or if it does not meet their stated requirements and objectives. The obligation is to avoid unsuitable credit rather than to recommend the best available.

Do responsible lending obligations apply to business loans?

Generally no. The NCCP Act applies to consumer credit - credit for personal, domestic or household purposes, or for residential investment property. Genuine business purpose lending sits outside the regime, which is why a business purpose declaration matters.

Is HEM still used?

Yes, as a benchmark floor. Lenders generally use the higher of your declared living expenses and the HEM benchmark, and declared expenses are verified against your transaction history rather than accepted at face value.

Related reading

• HEM Explained: How Lenders Estimate Expenses
• Why Home Loan Applications Get Declined: The Top 12 Reasons
• What Is a Business Purpose Declaration?

Sources

• Credit licensing: Responsible lending conduct (RG 209) — ASIC
• Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry - Final Report — Commonwealth of Australia