ASIC's review, detailed in Report 805 titled 'Falling short: Compliance with the small amount credit contract obligations,' examined lender practices following regulatory changes introduced under the Financial Service Reform Act 2022 (FSR Act). The reforms, implemented in 2022 and 2023, were designed to strengthen consumer protections and prevent lenders from circumventing regulatory obligations.
Key findings from the review include:
- Some lenders entering into unsuitable contracts with consumers, failing to consider the individual's financial situation and needs.
- Failure to identify appropriate target markets and distribute products accordingly, leading to potential mismatches between the product offered and the consumer's requirements.
- Business models that may be structured to sidestep additional protections imposed on SACCs, thereby exposing consumers to higher risks.
ASIC Commissioner Alan Kirkland emphasized the importance of adhering to consumer protection laws, stating, "Consumers who access these products are often financially vulnerable. That's why people who use small amount credit contracts are subject to additional protections."
In light of these findings, ASIC urges small credit lenders to:
- Ensure that all credit contracts are suitable for the consumer's financial situation and objectives.
- Clearly define and adhere to target market determinations to prevent mis-selling of financial products.
- Review and adjust business models to comply fully with the enhanced consumer protection regulations.
By addressing these compliance issues, small credit lenders can contribute to a more transparent and fair financial environment, ultimately benefiting both consumers and the industry.
