Purpose of the report
This report seeks to provide a holistic view of responsible lending obligations in relation to a full suite of consumer credit products, with a focus on consumer protection.
The report identifies practices and initiatives that promote responsible lending in the consumer credit market. In doing so, FinCoNet intends that the report will provide a platform for relevant authorities to exchange views regarding notable and effective approaches to address the issue of responsible lending. Consistent with FinCoNet’s mandate, this report also has a strong emphasis on supervisory and enforcement capabilities.
This report aims to be consistent with and build on the work already undertaken in this area. It is informed by and draws on a range of existing work on consumer credit and responsible lending, including the work of international standard-setting bodies, regulatory authorities in different jurisdictions, consumer bodies, scholarly literature and empirical research.
The report does not seek to provide an exhaustive policy framework for responsible lending. Rather, it seeks to draw attention to the range of current and emerging regulatory practices intended to promote responsible lending.
This work is important for the protection of consumers, and a component of safeguarding the stability of financial markets into the future.
Overview of the report
This report sets out the key results from the survey and, more broadly, reflects international developments and experience to date. It seeks to identify useful practices to promote responsible lending.
This is presented in five main sections:
- Regulatory framework, which sets out how a jurisdiction’s financial regulatory framework regulates consumer credit;
- Consumer engagement, which identifies a range of regulatory tools and mechanisms to assist consumers in making a decision to obtain credit;
- Industry obligations, which identifies the suite of tools and mechanisms used to require industry to lend responsibly (business conduct requirements);
- Regulatory controls, which identifies controls or prohibitions on the provision of consumer credit and credit products or features; and
- Supervisory and enforcement tools, which identifies the suite of tools and mechanisms that enable jurisdictions to ensure compliance with responsible lending obligations, including supervisory and enforcement capabilities.
Each section sets out an overview of the survey and the main results. It also identifies trends, limitations and key approaches. Good practices among a variety of jurisdictions are identified in case studies and examples.
Observations from the report
The report identifies that responsible lending obligations and approaches have developed significantly over the past ten years.
The global financial crisis has drawn attention to the importance of consumer protection, particularly responsible lending, as a component of a stable financial system.
The report suggests that the policy and regulatory frameworks to support consumer credit and promote responsible lending in a jurisdiction are in a transition phase – moving towards a more robust and consumer-focused regulatory environment.
The current emerging practices, tools and mechanisms reflect a heightened concern about the impact of irresponsible lending on consumers and, as corollary, the economy as a whole.
In some part, these changes are a reflection of the development of international standards intended to respond to the financial crisis and International Financial Consumer Protection Organisation, July 2014 8 FinCoNet report on responsible lending: Review of supervisory tools for suitable consumer lending practices promote financial stability. However, there are also a number of developments outside international standards that seek to advance the interests of consumers, due to policy concerns about irresponsible lending.
While this report and its observations reflect a current ‘state of play’, a majority of jurisdictions have identified that they are in the process of law reform to improve their responses to irresponsible lending and create a stronger consumer credit regulatory regime.
