From 31 July to 11 September 2023, AFCA invited members, consumer groups, industry bodies and other stakeholders to submit feedback and questions during consultation on its draft Approach to Responsible Lending. 

This page provides a summary of the consultation, the feedback and questions raised and AFCA’s response.

About Responsible Lending

Responsible Lending complaints are about consumer credit provided for personal, domestic or household purposes, such as personal loans, credit cards, and home loans. The Responsible Lending Approach explains how we consider these complaints, including:

  • how we assess a financial firm’s compliance with responsible lending obligations 
  • how we determine a fair outcome where a firm breaches its responsible lending obligations, and  
  • how we calculate loss and assess benefits to determine compensation.

AFCA’s Approach to Responsible Lending

Read AFCA’s final Responsible Lending Approach document. The Responsible Lending Approach was first published on 15 December 2023. We published an updated version of the Approach on 12 January 2024 with minor clarifications and formatting corrections.

Consultation Feedback Report

AFCA has now carefully considered all feedback received from our stakeholders and is grateful for their input. You can read a summary of the feedback received and AFCA’s response further below. You can also read our full response in AFCA’s Consultation Feedback Report. AFCA would like to thank all stakeholders that participated for providing valuable feedback during the course of this consultation.

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6 weeks of public consultation

310 registrations to our public webinar

1,026 views of the new approaches consultation website

41 attendees at roundtables 

25 full submissions made to AFCA 

6 stakeholder groups consulted: Government, regulators, consumers and consumer groups, industry members and peak bodies

Responsible Lending submissions

We received a total of 25 formal written submissions, including 21 non-confidential submissions from a number of different stakeholder groups. All non-confidential submissions have been published on the AFCA website here. After reviewing all submissions, AFCA met with a number of stakeholders to further understand their feedback and explain any proposed changes to the Approach in response.

Consultation response

Consultation feedback summary 

We received a range of feedback on our proposed Approach to Responsible Lending. The key feedback themes are summarised below. You can read more in AFCA’s Consultation Feedback Report.

Following feedback, we have provided greater clarity in many areas including:

  • the role of technology and innovation in credit assessment methods that comply with the law
  • factors affecting the level of inquiries and verification steps that are reasonable in any given complaint
  • how we will consider a financial firm’s assessment of reasonably foreseeable changes in a complainant’s financial circumstances,
  • how we review whether a financial firm reasonably assessed a credit product was likely to meet a complainant’s requirements and objectives, and
  • repayment of adjusted debts and applicable interest rates.

Verification requirements and use of benchmarks

Consultation feedback

  • Industry stakeholders requested changes to the draft Approach including further illustration of the ‘scalability’ of reasonable inquiries and verification steps.
  • Consumer groups asked for clarity, including about whether using benchmarks alone is sufficient to meet the required standard of reasonable verification.
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AFCA response

In response to this feedback, we have added:

  • new separate sections about circumstances where we may consider more or fewer verification steps may be reasonable
  • a case example where AFCA considered fewer verification steps were reasonable, and
  • a new section titled ‘Undertakings to reduce existing expenses’.

Changes the financial firm could reasonably have foreseen

Consultation feedback

  • A key theme for stakeholders was how this section aligns with ASIC  Regulatory Guide 209 (RG 209).
  • Stakeholders also asked AFCA to clarify what we may consider reasonable when assessing whether a consumer will be able to repay a loan in retirement.
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AFCA response

We have improved this section in a number of ways, including:

  • adding more information about our expectation where a complainant is closer or further from retirement when applying for a loan, and
  • clarifying our expectations about reasonable use of interest rate buffers.

Assessing requirements and objectives

Consultation feedback

A number of stakeholders requested that we include information about how we consider if a financial firm has reasonably assessed if a credit contract meets a complainant’s requirements and objectives.

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AFCA response

In response, we have added a new section explaining how we assess if a contract meets a complainant’s requirements and objectives and examples of common issues.

How we determine fair outcomes and calculate a complainant's loss

Consultation feedback

Stakeholders requested AFCA provide more detail about how we calculate loss and benefits in circumstances where we determine a loan is unsuitable.

  • Stakeholders requested AFCA amend how we propose to calculate loss and benefit in circumstances where we determined a loan is unsuitable.
  • Stakeholders also asked for more details about how an adjusted debt should fairly be repaid.
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AFCA response

  • We have maintained a principles-based approach that aligns with law and regulatory guidance, while maintaining flexibility to do what is fair in the circumstances of particular complaints.
  • We have clarified the principles we apply to assess loss and determine fair outcomes, including more information about when we may determine how interest should be paid on an adjusted debt.

Serviceability Assessment Tool

Consultation feedback

Industry stakeholders requested clarity about how AFCA intended financial firms would use the tool.

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AFCA response

The tool will be optional only.

Continuing to seek your views

The AFCA Responsible Lending Approach was developed in response to calls from stakeholders to provide clarity around AFCA’s existing approach to these complex complaints, and to ensure consistency in AFCA decisions and other complaint outcomes.  To ensure it is meeting the needs of stakeholders and is not producing any unintended outcomes, we intend to check in on the operation of the Approach in 2024. We will provide more information about the format of this review closer to the time.

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