As part of our educational series, this article addresses the legislation, regulations and obligations around responsible lending in regard to consumer finance. This information is provided to ensure you are well-informed around the car loan process and the obligations are in place to safeguard consumers.
At Jade Car Loans we are driven to assist our customers by sourcing them the best car loan possible and making the entire process as easy and streamlined as possible. Some customers may think we ask a lot of questions, request a lot of information and provide a lot of information and paperwork. But customers need to be aware that this is not only our consultants being thorough but the process that we are required to undertake under the law.
Specifically, as a credit licensee, that is we are licenced as a finance broker, we must comply with the responsible lending conduct and obligations as set out in the relevant section of the National Consumer Credit Protection Act 2009. This area of law is regulated by ASIC – the Australian Securities and Investment Commission and in 2019 legislation was enacted to strengthen the penalties for misconduct in relation to these regulations.
When applying for a loan to buy a car for your personal use, ie a consumer car loan, you should be aware of the lender regulations. To assist you to understand your rights and how your Jade broker must act in handling your car loan, we are providing this comprehensive article on Responsible Lending Guidelines.
The Role of ASIC
An independent Government body, ASIC is the regulator of financial services, consumer credit, corporate activities and financial markets in Australia. In regard to consumer credit, ie car loans, ASIC administers the National Consumer Credit Protection Act, which includes setting the guidelines that lenders such as Jade and the banks and financial institutions must follow when offering loans to individuals.
ASIC establishes the responsible lending guidelines and applies penalties for misconduct. So your Jade Car Loans broker is working under strict laws at each stage of your car loan process.
Responsible Lender Guidelines
All persons and businesses that offer consumer lending services must be licenced under ASIC and are referred to as ’credit licensees’ in the regulatory documents. That includes banks, finance companies and finance brokers like Jade. For your information, our Australian credit licence number, 484387, is well-displayed on all our material which is required by law.
ASIC has established the guidelines that lenders such as Jade must follow. A critical part of those regulations is that we must comply with the responsible lending conduct obligations which are set out in the Act. Part of those obligations involves establishing our own operational procedures to ensure we meet these obligations.
All credit licensees are required to comply with these obligations and key to that is that a licensee must not enter into a credit contract, ie offer a car loan to a consumer; or suggest any credit contract; or even assist a person to apply for such a contract, in this case the contract being a car loan contract, if the contract is unsuitable for that consumer.
In simple terms, under the law Jade Car Loans cannot offer you a car loan that is not suitable for you.
So that raises the next issue in the lender guidelines – how credit licensees, in this case Jade Car Loans, implement processes to ensure compliance with the obligations. In simpler terms, we have to have our own strict practices in place to ensure that we have covered all issues to ensure the loan offer we make to you is suitable for your financial situation.
ASIC set out specific obligations that Jade and all credit licensees, must follow in regard to essentially two sides of the consumer car loan application process:
- Establishing, implementing and adhering to a set of practices and protocols for checking and verifying a customer’s financial situation and assessing the suitability of a specific car loan for that person.
- Disclosure: the obligation to provide customers with certain documents and information to ensure they understand both the services we provide and the details of the loan contract being offered.
By being aware of our obligations as responsible lenders, you will hopefully gain a better understanding of the car loan application process and why our consultants work so diligently in sourcing the loan that is best suited to your specific requirements.
We elaborate on both these points for you.
Meeting our Responsible Lender Obligations
To ensure that Jade Car Loans meets its obligations as a responsible lender of consumer finance, we have developed and implement a Responsible Lending Flow Sheet. This is a detailed, step-by-step process that our consultants must strictly adhered to when discussing a consumer car loan with one of our customers.
Jade’s Responsible Lending Protocols
- Consultants must provide a copy of the Credit Guide to every customer they have discussed finance with. To meet our own strict internal procedures, our consultants much retain records of the credit guide sent to customers as confirmation.
- Credit quotes must be signed if a DOF is proposed and this included in the application submission.
- Privacy statements must be signed by the applicant. This is our confirmation that we have advised you of the issues around sharing your information with lenders for the purpose of securing you a car loan quote or offer.
- Detailed Credit Check which includes: verifying address history; checking credit scores and credit history; and directorship history.
- Check of Financial Capacity which includes verifying the information of your financial situation that you have provided to us.
- Check of living expenses is conducted verbally so the consultant can confirm all living expenses have been included. A copy is sent to the customer to confirm both the expenses discussed and that the discussion and this step was completed.
- Consultant then completes a ‘Pre Lim’ which is a document that establishes that the consultant is reviewing the needs of the customer.
- A Credit Proposal is then sent to the customer. This proposal details how the consultant is proceeding with the application or enquiry, the total loan amount involved, the proposed repayment schedule and other details around the propose car loan.
- If a balloon is requested with the car loan, the consultant will discuss how the customer intends to finalise this balloon payment when due.
- Throughout every stage and every process, the consultant will retain complete notes including the date and the timeline of all interactions with the customer.
We have put these steps and processes in place to ensure Jade Car Loans meets its responsible lender obligations which in turn ensures the best interests of our customers are being addressed. Addressed in an ethical, responsible and lawful manner.
A very important part of Jade’s obligations as a responsible lender is to ensure that our customers, both those just making enquiries and those that proceed to finalise car loans, are provided with all the necessary information they require.
The specific documents, ie information, which we are required to provide are detailed in ASIC’s Responsible Lending Disclosure Obligations. These documents are intended to provide customers with the information that will enable them to understand the credit activities that are provided by Jade Car Loans.
In addition, the information provided under the disclosure obligations is provided to help customers understand their consumer right, understand contract and offers being made to them and assist in making their own decisions.
Under these regulations, Jade Car Loans is required to disclose (provide to you) the following information and documentation:
- Credit Guide: this is general and preliminary information around consumer credit.
- Quote of services: quote of the fees and costs of services that the credit licensee intends to charge must be provided to the customers. The customer must accept this quote with their signature and date.
- Proposal Document: this document provides customers with the costs of the services including any commissions received by the credit licensee.
- Written Assessment: this assessment states that a credit contract, in this case a car loan, is not suitable for a customer.
The Jade Commitment
As a credit licensee, Jade Car Loans not only makes a commitment to comply with the responsible lender regulations as required by ASIC but we make our own ethically-based commitment to always act in the best interests of our customers.
All banks, lenders and brokers operating in the consumer finance sector must comply with the ASIC regulations and if they don’t, significant penalties apply. If you are dealing with other companies and lenders in sourcing your personal car finance, you now have the information so you can check that they too comply with all aspects of the Responsible Lending Guidelines.
For more information and to read the full detail of ASIC rulings around credit licensees go to ASIC responsible lending
If you have any questions around any aspects of consumer finance, please contact Jade Car Loans and one of our consultants will assist you. Call 1300 000 003