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Child support, casual work: what banks want to know before you borrow

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Banks will need much more than just a payslip before providing a loan, according to guidance on responsible lending laws released by ASIC.

"You will need information to determine whether that income is consistent and likely to remain at that level for the term of the credit product," notes the guidance.

"If the consumer has casual or season employment, you will need information about the variations in hours and in hours and pay that may be expected."

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The fuller financial profile now required to assess the appropriateness of a loan will include the source of the income - such as whether it comes from third parties such as social security payments, child support payments, or assets - as well as current outgoings .

The requirements will apply to large and longer-term loans, credit cards and personal loans, small amount loans and consumer leases.

The responsible lending requirements don't entitle customers loans, but instead enable banks to screen out unsuitable candidates.

"What we've tried to do is make it easier for lenders to comply with their obligations by providing them more detailed information about what they need to do," ASIC Commissioner Sean Hughes told The Sydney Morning Herald.

"The provision of credit is ultimately a decision for banks."

The CEO of the Australian Banking Association, Anna Bligh, says the updated guidance will help inform banks' of their responsible lending obligations before they lend to customers.

"This is an important document for the industry to guide each bank's approach to responsible lending which we will now study closely to assess any impacts it may have on borrowing for customers.

"The industry is pleased to see ASIC has maintained a principles based approach to lending, which as an industry we have called for, and to ensure banks are able to fulfil their obligations without the process becoming too restrictive for customers."

The update has been positively received by consumer action groups.

"This revised guidance from ASIC will make our existing laws easier to enforce and will play an important role in protecting people from being exploited by banks and other lenders," says Consumer Action CEO Gerard Brody

"What also matters is a fair outcome if a consumer is given an irresponsible loan. We will continue to engage with the external dispute resolution scheme, the Australian Financial Complaints Authority (AFCA) on this."

Financial Rights CEO Karen Cox says that while ASIC did not go as far as they would have liked, "they have made it clear that a lot of current lending practices are not up to scratch, nor do they meet the community or regulator expectations".

"The days of using the HEM benchmark as a substitute for genuine inquiry and communication with a potential borrower are over."

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David Thornton is a journalist at Money magazine. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.
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