BOQ's Opening Statement (delivered by Interim CEO, Anthony Rose)
Monday, 12 August 2019
Thank you for the opportunity to appear before the Commission today, to discuss ASIC’s consultation regarding responsible lending obligations, and Bank of Queensland’s submission responding to ASIC’s consultation paper.
By way of background, BOQ was first established in 1874. Today we employ more than 3,000 people, and serve nearly one million customers through a national network of around 170 branches. Our unique franchise model network of owner manager branches forms part of the two million small businesses contributing to the Australian economy.
Responsible lending is an important issue for all customers, irrespective of who they borrow from. It is therefore important to place customer outcomes at the forefront of any deliberations around responsible lending. As we have previously noted in public commentary, our approach to responsible lending has seen us validate expenses declared by all borrowers in their home loan applications against bank statements. This invariably identifies items that warrant further consultation with customers to more properly understand their position, which has impacted on time to decision and on the experience for our customers. In our view, this has led some customers to instead seek finance from lenders whose approach may not have been as rigorous. This is particularly pronounced for customers who choose to use a mortgage broker. We therefore welcome ASIC’s decision to review its responsible lending guidance, and see this as very timely.
Our submission makes a number of comments regarding the current responsible lending framework, and Chris and I are happy to elaborate on our submission in any areas where you would like additional context.
But before that, I would like to emphasise the importance of responsible lending obligations delivering the right outcomes for all customers, irrespective of who they seek a loan from. When considering any changes to the current guidance, it is critical to think about the impact of these changes, and whether they are likely to lead to better customer outcomes at an industry wide level. Customer outcomes should be viewed from two perspectives, firstly ensuring that customers do not enter into obligations that are not unsuitable to their particular circumstances, but also ensuring that customers who would otherwise qualify for a loan on suitable terms are not denied access to credit.
Importantly, while additional obligations may provide some additional protection at the margin, they also impose additional costs and burdens on customers by requiring the collection, lodgement and verification of additional information. This more intensive set of requirements can also lead to a slower and more complicated approval process. The customer frustration and dissatisfaction this can lead to should not be overlooked, and is something we are all too familiar with given the approach to expense verification adopted by BOQ in recent years.
Responsible lending obligations also need to be set at an appropriate level which balances the competing goals of protecting consumers and providing them with access to credit. There is a risk that changes to responsible lending obligations could lead to a situation where people who should be able to access credit are no longer able to do so or at the same levels they otherwise could. While responsible lending needs to provide appropriate protection to customers, it is equally important that it does not unnecessarily constrain access to credit, as this would have real consequences, both for individual customers and the broader economy.
Finally, whatever determination ASIC makes about the appropriate settings for the responsible lending framework, we believe that greater clarity and certainty of the regulator’s expectations should be incorporated into the regulatory guidance. Hearings throughout the Royal Commission have shown that different banks have clearly interpreted the current guidance in differing ways. In our view, regulatory guidance that provides too much latitude for subjectivity and interpretation is not the best outcome for customers or competition.
Where ambiguity exists in the responsible lending obligations, there is a potential incentive for some banks to adopt lower standards, and use this as a competitive advantage against those with processes and methodologies that provide more protections for customers. Having lenders compete on price, innovation and customer service will deliver good customer outcomes. In contrast, creating an incentive for lenders to compete with each other through the application of differing responsible lending standards is in not in the best interests of customers or the industry.
I am happy to elaborate on these issues, or any other matters that you may wish to discuss, and welcome your questions. Ultimately, we believe that regulatory guidance which provides the industry with clear direction and sets responsible lending expectations at an appropriately robust level, will be critical to ensuring a well-functioning lending market, which is able to deliver the right outcomes for all Australian borrowers.