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The proposed ASIC intervention power over financial and credit products may create a "mismatch" between what customers want and what regulators think is best for them, said law firm Dentons.
The Treasury has released draft legislation to give ASIC an intervention power over financial and credit products. The bill proposes allowing ASIC to order the ceasing or changing of a conduct if it believes a business engages in or is likely to engage in a credit activity that has resulted or is likely to result in significant harm to consumers.
Credit activity will include lending and finance broking.
If approved, ASIC can make such an order even if a product complies with the National Credit Code. However, the regulator will need to consider the nature and extent of the harm to consumers and the actual or potential financial loss or detriment to them.
Also, ASIC must not make an intervention order unless it has consulted with parties, including businesses and their potential customers, likely to be affected by the order.
Dentons said in a note that problems may arise “because consumers often want to borrow in circumstances where regulators consider they shouldn’t borrow”.
“There is potential here for a mismatch between consumers’ ‘naïve’ wishes and regulators’ ‘superior’ knowledge of what’s best for consumers.”
It cited the abolition of deferred establishment fees and small amount credit contract loans as high profile examples in recent years of “major differences in approach”.
“Brokers are often at the cutting edge of offering new products and systems to better serve their customers. Where does this leave brokers who have products blocked that (they) have been marketing in good faith? The answer will depend on the reason for ASIC exercising the intervention power,” Jon Denovan, special counsel at Dentons, told Australian Broker.
“It’s well known that the current hot compliance areas are assessment of living expenses and ensuring that the customer’s requirements and objectives are met – both part of responsible lending obligations. If ASIC decides that a product breaches responsible lending obligations, brokers who followed the product’s procedures could also be found to be in breach,” he said.
The Treasury accepts submissions on the draft bill up to 9 February 2018.
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