The Mortgage and Finance Association of Australia (MFAA) is seeking clarity from the Australian Securities and Investments Commission (ASIC) regarding the circumstances by which responsible lending obligations apply to variations to credit contracts.
Under the 'National Consumer Credit Protection Act 2009' (NCCP Act), increases to a credit contract automatically trigger responsible lending requirements, but if a borrower wishes to vary the terms of a loan, the requirement for disclosure documents will depend on individual circumstances.
The MFAA stated that it is currently seeking assistance from lenders regarding "where a variation to a credit contract is required by a borrower, this is preferable to a new contract which would require the broker to prepare a new preliminary credit assessment along with other disclosure documents".
If a new contract is drafted, then the lender's obligation to complete new disclosure documents will also apply.
The MFAA is lobbying lenders not to use new contracts where a consumer request is only for a variation, and for Treasury to amend the NCCP Act to state that if a variation is documented by a new contract, it is still a variation.
"However, where a variation to an existing credit contract is suggested as an alternative to a new credit contract (either with the same or different credit provider), it would be expected that responsible lending obligations for credit assistance would be triggered," the MFAA added.
