KEY POINTS
- Improving consumer outcomes in relation to financial products and services is a priority for ASIC. We will continue to focus on protecting consumers from poor conduct and harm from products in the credit and banking sectors.
- We also remain focused on advancing digital and data safety including addressing technology enabled misconduct like scams – and monitoring the use of artificial intelligence.
- We continue to monitor the regulatory settings (including the responsible lending obligations) and their outcomes. Our findings indicate that consumers continue to be able to access credit overall – and it is increasing.
Check against delivery
Good morning, everyone. It’s a pleasure to be here at the 34th Annual Credit Law Conference.
I would like to begin by acknowledging the Yugambeh people as the traditional owners and custodians of the land we are meeting on. I pay my respects to their elders past, present and emerging – and extend that respect to Aboriginal and Torres Strait Islander people here today.
Looking at the agenda for today’s event, I’m struck by how closely it resembles ASIC’s own regulatory agenda. Financial hardship, artificial intelligence and combatting scams are all areas of intense and ongoing focus for ASIC. Also high on our respective agendas, the recently updated Banking Code of Practice and buy now, pay later reforms.
I’d also like to introduce two of my ASIC colleagues, who are here to appear on other panels today: Suneeta Sindu, Senior Executive Leader of our Strategic Surveillance and Data team and Nathan Bourne, Senior Executive Leader of our Credit, Banking and General Insurance team.
Suneeta is on the panel discussing hardship and mortgage stress and Nathan is on the panel discussing the buy now pay later reforms – and between them they have led the extensive body of ASIC banking and credit work that I will be providing an overview on.
To frame this overview, it’s worth starting with an outline of ASIC’s strategic priorities. These encapsulate the intended outcomes of our activities and set out our expectations of the entities we regulate.
In the year ahead, ASIC’s work will be guided by five strategic priorities.
- To improve consumer outcomes in relation to financial products and services;
- To address financial system climate change risk;
- To encourage better retirement outcomes and member services;
- To advance digital and data resilience and safety; and
- To drive consistency and transparency across private and public markets and products.
The two priorities of most relevance to you – and which I will focus on today – are the first and fourth. That is ‘to improve consumer outcomes’ and ‘to advance digital and data resilience and safety’.
Improving consumer outcomes in relation to financial products and services
ASIC continues to place the highest priority on protecting consumers from poor conduct and harm from products in the credit and banking sectors.
As you might expect, given the ongoing cost-of-living pressures, we have a significant range of work in this area. To structure the overview of these workstreams, I will cover this in three tranches: recently published reports; ongoing ASIC-initiated workstreams; and other multi-party reviews and processes.
Recently published reports
There are four key reports that we’ve published this year to bring to your attention: financial hardship assistance, fee harm in retail banking, credit card lending and product design and distribution.
Financial hardship
In May, we published our report Hardship, hard to get help: Lenders fall short in financial hardship support (REP 783). This followed a detailed review of the hardship practices of 10 large home lenders, where – as the title makes explicit – we found considerable room for improvement.
Lenders should be taking steps to ensure their customers are aware that financial hardship assistance is available and that they understand when and how to request it. That process should be easy and efficient – and customer-facing staff should be trained to identify and respond to hardship notices.
However, it would be fair to say that, based on what we observed, this was not generally the case.
While our review and report are now complete, our work here is not done. We are continuing to collect hardship-related data until at least June 2025 – and will engage with lenders where we identify indicators of poor customer outcomes.
My colleague Suneeta will talk in more detail on our findings, recommendations and outcomes at the panel on financial hardship and mortgage stress this afternoon.
Better banking for Indigenous consumers
In July, we published our Better banking for Indigenous consumers report (REP 785).
In it, we outline expectations for the banking sector to reduce fee harm on transaction accounts through identification and effective migration of customers on low incomes, who are eligible for low-cost, basic accounts.
This project found that the four banks in our review kept at least two million low-income Australians, including First Nations people, in high-fee accounts. Some of whom were paying up to $3,000 in overdraw fees a year.
As a result of our interventions, the banks have improved processes. By adopting opt-out migration approaches to reduce customer burden in accessing low-fee accounts. By expanding eligibility to reflect receipt of low income – as opposed to limiting eligibility to customers with a government concession card. By reviewing and creating new lower-fee products – and by improving customer communications.
Tangible outcomes from the project also include banks returning over $28 million in fees and migrating more than 200,000 customers into low-fee accounts. This will save those customers an estimated $10.7 million in future yearly fees.
Credit cards
In July, we published our report Credit card lending in Australia: Staying in control (REP 788).
This review looked at 20 million accounts, across 13 lenders, over a six-year period, with a focus on understanding changes in credit card usage, credit card features, problematic debt and the implementation of the design and distribution obligations.
The report highlights a number of actions lenders can take to reduce harm and improve consumer outcomes, which all credit card providers should consider adopting.
One example of a number in the report: lenders can help consumers choose credit cards that better suit their likely usage by promoting targeted credit card selector tools and conducting ongoing assessment of how consumers are using high-interest rate or high-fee cards.
Product design and distribution
Of course, no discussion on improving consumer outcomes – not at least from ASIC’s perspective – would be complete without consideration of the design and distribution obligations (DDO).
Since these game-changing rules came into play – three years ago this month – ASIC has commenced five DDO-related civil proceedings, issued 90 stop orders and published the results of seven reviews.
In September, we published the results of our latest review on the ‘reasonable steps’ requirement (REP 795). That is, the measures an issuer must put in place to support the appropriate distribution of their products to the appropriate consumers.
The review looked at 19 product issuers across a range of sectors, including five issuers of medium amount credit contracts. While we found that progress had been made, improvements are still needed.
Three example areas for improvement: we observed limited due diligence arrangements around the selection and supervision of third-party distributors; poor-quality consumer questionnaires; and limited monitoring of consumer outcomes.
We also found that some issuers targeted consumers who used broad online search terms. For example, consumers who searched 'loan' would be sent advertisements for medium amount credit contracts.
It is important that issuers recognise that not all consumers who are interested in a product necessarily fall within its target market. Issuers should take care to ensure online marketing strategies are aligned with their target market determinations (TMDs), including in their selection of keywords to direct advertising to consumers.
Ongoing ASIC-initiated workstreams
Naturally, there is a significant amount of ongoing work associated with the reviews I have just mentioned – and of course DDO, as a whole, remains a focus area for ASIC.
In addition to this, I want to cover two particular ongoing ASIC-initiated workstreams, focused on reforms to small amount credit contracts and consumer leases.
Small amount credit contracts
On small amount credit contracts, we have undertaken a review testing compliance with a sample of the new laws introduced under the Financial Sector Reform Act 2022 – and are considering how changed practices might impact existing obligations. Including compliance with responsible lending obligations for small amount credit contracts.
We have observed product changes in the sector and have been looking to understand how changes in product design may impact consumers. For example, we are concerned that consumers are not upsold larger loans or ongoing credit products that they cannot afford or do not want.
In terms of what’s next in this space, we will consider what further investigative or enforcement action is appropriate, where we identify poor and potentially non-compliant conduct.
Consumer leases
On our review of consumer leasing, we’ve observed some providers moving away from consumer leases, into other credit products. Such as the sale of goods by instalment contracts. We have been reviewing compliance with these products as well. We’ve also seen a significant reduction in the overall value of Centrepay deductions since the reforms came in.
Should ASIC continue to see non-compliance with the latest reforms on consumer lease providers, we will take action.
Other multi-party reviews and processes in banking and credit
Lastly on improving consumer outcomes, I want to talk about some of the wider reviews and processes ASIC is involved in – along with our perspectives on the regulatory settings and the upcoming regulatory initiatives grid.
ABA Banking Code of Practice
In June, ASIC approved a new and enhanced version of the Australian Banking Association’s Banking Code of Practice, which will commence in February 2025.
From our perspective, it was essential the Code remained responsive to changing community needs – and relevant to current and emerging circumstances. Because, only by taking these factors into account, can it genuinely support customers’ best interests.
Throughout the Code approval and consultation process, we worked to ensure that important consumer protections were retained and, where needed, enhanced. So that it genuinely presents a range of industry commitments to today’s consumers – that go above and beyond what is already required by law.
Among the improvements we sought are enhanced protections for loan guarantors, a broadened definition of financial difficulty – with more examples of its causes – as well as improved inclusivity and accessibility for customers of banking services.
Just like consumers, we know many small businesses are under strain. The new Code also provides a broadened definition of small business, meaning an additional 10,000 will become eligible for its protections.
Buy now, pay later
In June, draft legislation was introduced into Parliament which would see buy now, pay later regulated under the National Credit Act, with modified responsible lending obligations. ASIC has been working closely with Treasury to prepare for this change.
We will likely issue standalone guidance related to low-cost credit contracts (which buy now, pay later falls under) that addresses the modified responsible lending obligations and other obligations. This is subject to further consideration – and we will consult with stakeholders before finalising it.
You will hear more on this topic from my colleague Nathan at this afternoon’s panel on the impact and future of the buy now, pay later market.
Small and medium-sized banks review
The Council of Financial Regulators (CFR) in consultation with the ACCC are undertaking a review of the mid-tier banking sector. This will examine the role these banks play in providing competition, including any regulatory and market trends affecting their competitiveness.
The CFR has established a working group and is in the process of drafting an issues paper, following its initial round of stakeholder engagement with industry. Industry has already begun to raise issues and potential proposals on what would assist the sector to be more competitive.
ASIC is supportive of the review and working together with fellow CFR agencies in identifying solutions which encourage competition without weakening consumer protections.
Regulatory settings
In speaking to you today, I also wanted to share some observations on the recent public commentary that the regulatory settings, including the responsible lending obligations, are restricting the availability of credit.
We take these concerns seriously and, in response, have reviewed ASIC and other relevant data on home and personal lending[1]. Our analysis of this data indicates that consumers continue to be able to access credit overall – and it is increasing.
Property lending is increasing. The value of new housing loans rose by 23% in the 12 months to August 2024, with monthly lending reaching $30.4 billion. In fact, new monthly lending for property purchases is now larger in Australia than it is in the United Kingdom. Lending by banks remains the main source – at 95.1% in August 2024.
In our view, this data dispels, to some extent, the proposition that ‘conservative settings’ are driving consumers toward non-bank lenders to any significant degree.
In relation to personal lending, the annual value of credit card transactions has plateaued ($326 billion in the 12 months to August 2024). However, the annual value of debit card transactions has been progressively increasing ($600.1 billion in the 12 months to August 2024). This compares with $373.8 billion in the 12 months to August 2020.
While many consumers have embraced buy now, pay later as an alternative to products like credit cards, its usage (while steadily increasing) only represents around 2% of Australian card purchases.
We acknowledge that there are a range of factors that impact the accessibility and availability of credit and that it can be difficult to unpick the varying impacts of each of these factors, including the specific impact of the responsible lending obligations.
We will continue to monitor these settings and their outcomes – and we remain interested in new data and market developments. However, our assessment of the data suggests that easing the responsible lending obligations would not necessarily result in an increase in affordable credit.
Regulatory initiatives grid
Beyond these specific settings – and more broadly – ASIC is conscious of the need to reduce regulatory complexity and impost as much as possible. As such, we welcome the development of the government’s regulatory initiatives grid.
The grid will provide industry with a multi-agency view of major regulatory activities over a rolling 24-month period – with the first iteration due to be published in December and updated twice a year.
This will help entities plan and allocate resources – and create greater opportunities for government and agencies to coordinate and sequence their activities in order to minimise regulatory burden.
Its content will be limited to initiatives and actions that are expected to materially affect the financial sector. For ASIC this will largely include: the development of exposure draft and final instruments and explanatory materials (where the impact is significant); the development of new or substantially updated regulatory guides; and thematic surveillances and associated data collections.
Advancing digital and data resilience and safety
Turning now to the fourth of our strategic priorities – advancing digital and data resilience and safety – which includes our work on scams and artificial intelligence.
Scams
Of particular relevance to this audience will be our work in relation to scams prevention, detection and response in the banking sector.
In 2023, we reviewed the practices of the four major banks (REP 761). Since then, these banks have taken a series of steps to improve their ability to prevent or mitigate scam losses.
Following on from this, we reviewed a further 15 banks. In our report, published in August (REP 790), we highlighted a number of areas of concern – not dissimilar to those identified through our earlier review of the ‘big four’.
Concerns included the significant variability in the maturity of scam strategies and governance, inconsistent and narrow approaches to determining liability and a lack of support for scam victims.
The findings in this second review revealed that the total value of scam transactions made by customers amounted to $232 million. Only 19% of these transactions (by value) were detected and stopped by the banks, with just 20% of the funds recovered. 96% of total scam losses were borne by the banks’ customers.
To tackle the ongoing scourge of scams, the government is proposing to introduce a Scams Prevention Framework, to be jointly administered by the ACCC, ASIC and the Australian Communications and Media Authority (ACMA).
This will impose anti-scams obligations on key sectors in the scams ecosystem – including banks. Consultation has recently closed on exposure draft legislation for the Framework.
Once in effect, businesses regulated under the Framework will be required to have internal and external dispute resolution arrangements to deal with complaints from consumers if they suffer loss resulting from a breach of the Framework.
ASIC also works closely with the National Anti-Scam Centre (NASC), run by the ACCC. Since the NASC’s establishment in July 2023, there has been a significant increase in investment from both the public and private sectors on preventing, detecting and disrupting scams.
In its Targeting scams report of April 2024, the NASC reported a drop in overall losses from investment scams from $1.5 billion in 2022 to $1.3 billion in 2023. Over the same period, the number of scams reported rose by 18.5% – indicating increased public vigilance.
We are also working to shut down the avenues scammers use to target potential victims through our investment scam takedown capability – as part of the government’s Fighting Scams initiative. To date, we have coordinated the removal of over 7,300 phishing and investment scam websites.
Artificial intelligence
ASIC has been working to educate regulated entities on their existing obligations around the use of artificial intelligence. At the same time, we have been building our understanding of how the industry is using AI.
We have been reviewing the current and planned use of AI among a selection of financial services providers – including the governance frameworks guiding its implementation. We expect to release our findings shortly.
We support the safe and responsible adoption of innovative technologies such as AI and will continue to monitor its use among our regulated entities, including as they respond to any new regulatory obligations that may be implemented.
Conclusion
So, that brings me to the end of my prepared remarks, and I conclude by reiterating the strategic anchors underlying all these workstreams: improving consumer outcomes in relation to financial products and services and advancing digital and data resilience and safety.
I thank you all for your time and interest in ASIC’s work – and wish you an interesting and enjoyable day ahead and I am happy to take questions.
[1]This review drew on data held by ASIC, as well as publicly available information from a range of sources including the ABS (Lending indicators, August 2024), APRA and the RBA.
