Australian Financial Complaints Authority updates its Responsible Lending Approach with clarifications on loss calculations and serviceability assessments

The Australian Financial Complaints Authority (AFCA) has published an updated Responsible Lending Approach following a check-in consultation with financial firms and consumer groups on how the approach is operating in practice. The update mainly refines wording and adds clarifications intended to improve consistency and provide clearer guidance on common responsible lending issues, including loss calculations and serviceability assessments. Feedback indicated the approach has helped parties anticipate likely outcomes and resolve complaints earlier, including at internal dispute resolution, but also highlighted the need for more consistent application and clearer communication of how AFCA applies the approach to the facts of a complaint. AFCA also addressed requests for additional clarity on loss calculation concepts and serviceability questions, including guidance on resolving inconsistencies between benchmarks, declared living expenses and verification material, and a clarification that APRA guidance on interest rate buffers applies to residential mortgage loans. The update also reflects the passage of the Low-Cost Credit Contracts regulatory regime, including the new ASIC Regulatory Guide 281, and includes clarifications on when certain holding, acquisition and sale costs may form part of a consumer’s gross loss and on capital gain and capital loss for home loans. Stakeholders asked AFCA to expand the approach to cover additional issues such as unjust transactions, pre-National Consumer Credit Protection Act loans and broker conduct, but AFCA has not expanded the scope at this stage and will explore other ways to provide guidance on these topics.