April 1st, 2014
Preliminary Assessments and compliance
As you know, the primary obligation under Responsible Lending or RG209 is to conduct an assessment that a credit contract or consumer lease is ‘not unsuitable’ for the consumer. This assessment is referred to as a ‘Preliminary Assessment’ (if providing credit assistance) or a Final Assessment (if you are the credit provider or lessor).
Before you make a Preliminary Assessment of whether a proposed credit contract or consumer lease is ‘not unsuitable’ for a consumer you must:
To assist you, we provide a number of NCCP templates in Mercury. By completing the required fields within a Mercury opportunity, you will be able to automatically populate the required information into the Preliminary Assessment template.
We strongly recommend that the assessment shows all relevant details pertaining to the transaction and why you have recommended a particular product or products. From an ASIC perspective, this information should be complete and comprehensive. Remember, you may at some point be required to explain why.
The importance of the Preliminary Assessment is to ensure you make adequate inquiries so that you do not place a client into an unsuitable product. To do so could be a breach of the NCCP (National Consumer Credit Protection Act). And there are financial penalties which can be quite substantial for a breach.
Reviewing your Preliminary Assessment files
Although Mercury makes it easy for you to conduct and document a Preliminary Assessment, it does not guarantee that the information is complete and comprehensive. It is important that you review the files on a regular basis to ensure the information contained in them is detailed and correct.
When you review your Preliminary Assessment files, please ensure that your assessment contains all the required information listed in the checklist below. The Preliminary Assessment must include the following.
Full current details of the client and proposed transaction, including:
Frequently missed areas
When reviewing Preliminary Assessments, the most common areas which are missed are the income and expenses areas. How can your Preliminary Assessment be complete if this area is empty? ie – What steps can you show to determine whether a product is not unsuitable? In Mercury you must enter the income and expenses for each applicant under them as the individual.
A number of points to refer to when reviewing your Preliminary Assessments are:
Recommendations for action
These are all best practice recommendations which should be built into your file review processes, not only for your own deals but those of your credit representatives. Ensuring you make adequate inquiries and retain detailed notes on all of the client files will satisfy the responsible lending obligations under the NCCP (National Consumer Credit Protection Act).
Above all, review all of your compliance disclosure documents to ensure completeness of all the points listed in the checklists above to ensure you are compliant with the regulations. For further guidance and support you can also review our Connective Wiki page by following this link http://wiki.connective.com.au/display/MER/Welcome or email email@example.com and review responsible lending under RG209 on the ASIC site http://www.asic.gov.au/asic/ASIC.NSF/byHeadline/Credit%20compliance