APRA to remove investor lending benchmarks following credit reporting legislation announcement
On 26 April 2018, the Australian Prudential Regulation Authority (APRA) has officially communicated with authorised deposit-taking institutions (ADIs) about its plans to remove the investor lending benchmark and replace it with more permanent measures to strengthen lending standards. This 10% benchmark was introduced in 2014 to reduce higher risk lending and improve practices within the Australian housing market, following a substantial increase in bank lending for property investment.
In order for the 10% cap to be removed, ADI boards are expected to confirm with APRA on the following:
1. lending has been below the investor loan growth benchmark for at least the past 6 months;
2. lending policies meet APRA’s guidance on serviceability; and
3. lending practices will be strengthened where necessary.
ADIs that do not provide the required commitments to APRA would still be subjected to the 10% investor loan growth benchmark.
In a statement, APRA Chairman Wayne Byres stated that while the announcement reflects improvement that ADIs have made to lending standards,
“The environment remains one of heightened risk and there are still some practices that need to be further strengthened. APRA is therefore seeking assurances from ADI Boards that they will maintain a firm grip on the prudence of both policies and practices".
This follows an announcement made by the Federal Government last year in relation to a mandatory comprehensive credit reporting legislation that will come into effect on 1 July 2018. This new regime would require the Big 4 banks – Commonwealth Bank of Australia (CBA), Australia and New Zealand Banking Group (ANZ), National Bank of Australia (NAB) and Westpac – to fully participate in the credit reporting system. The aim of this new measure is to give creditors access to a greater pool of data and make a better assessment of a borrower’s credit position and their ability to repay a loan.
When must the data be supplied to comply with the exposure draft legislation?
The first initial stage of mandatory information should be made to eligible credit reporting bodies within 90 days of 1 July 2018. Banks have the choice to select which accounts will amount to the required 50%.
What about the ongoing supply of new credit information?
The second stage of mandatory information has to be made to credit reporting bodies within 90 days of 1 July 2019 and should include information on the remaining accounts that were not included in the first stage. The ongoing supply of credit information must be made to the same credit reporting body that received the initial information.
The exposure draft legislation further stipulates that banks must perform the following actions when subjected to the ongoing supply of new credit information within 20 days after the end of that calendar month:
Withholding such information can impose 2,000 penalty units.
What kind of information will be supplied?
Information in relation to accounts that provide, or can provide, consumer credit such as home loans, personal loans, credit cards and overdrafts.
Is client information secure?
Yes. Banks are not required to supply information if they do not reasonably believe the credit reporting body is keeping the information secure. In accordance with legislation, data has to be stored within Australia or with a Certified Cloud Service provider.
Will this mandatory regime be reviewed?
Yes. An independent review of the mandatory regime must be completed by 1 January 2022 and be tabled in Parliament.
Are there any penalties involved?
Australian Securities and Investments Commission (ASIC) may seek civil penalties when a bank fails to supply credit information or a statement to the Treasurer. ASIC may also seek a civil penalty if a credit reporting body breaches its on-disclosure obligations or fails to supply the Treasurer with a statement. The maximum civil penalty that can be imposed is currently at $420,000 for a natural person and $2.1 million for a corporate body. Criminal penalties may also be imposed up to $21,000.
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