The corporate watchdog has joined the banking regulator in cracking down on interest-only home loans, announcing targeted surveillance of lenders and mortgage brokers inappropriately spruiking the loans.
The Australian Securities and Investments Commission (ASIC) also said eight lenders, including Commonwealth Bank, National Australia Bank and ANZ, will be forced to provide remediation, including possible refunds, to consumers who suffered financial difficulty as a result of shortcomings in past lending practices.
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Crackdown on investor loans
Treasurer Scott Morrison believes it's the willingness to loan money to investors coupled with watered down regulations that is negatively impacting household debt and housing prices. (Vision courtesy ABC News 24)
ASIC said it would shortly start surveillance in the interest-only lending sector to identify lenders and mortgage brokers who are recommending high numbers of more expensive interest-only loans.
It said data would be gathered using ASIC's compulsory information-gathering powers.
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The probe will cover large banks, mutuals and non-bank lenders.
It comes just days after the Australian Prudential Regulation Authority (APRA) wrote to all banks on Friday, saying it expected them to tighten their lending practices particularly on interest-only and investor loans.
ASIC governs non-bank lenders, who have taken a bigger chunk of the home loan market in recent years.
ASIC deputy chairman Peter Kell said lenders and mortgage brokers needed to ensure that consumers were being provided with the home loan product that met their needs.
"Lenders and mortgage brokers need to think twice before recommending that a consumer obtain a more expensive interest-only loan," he said.
He said lenders also needed to ensure they collected information that provided an accurate view of a consumer's financial situation.
"This is especially the case when interest rates are at record low levels".
The eight lenders to provide remediation to consumers are ANZ, Bendigo and Adelaide Bank, CBA, NAB, Firstmac, ING Bank, Macquarie and Pepper Group.
"Where appropriate, consumers will be provided with tailored remediation, which may include refunds of fees or interest," ASIC said. The lenders will be required to audit the process.
CBA said it was working with ASIC to refund customers.
"We have agreed to review whether any of our customers have suffered hardship due to errors in our historic lending practices, and if they have, we will remediate them," a spokesperson said.
The eight lenders were identified as part of an ASIC investigation in 2015.
The 2015 investigation identified "troubling" instances where lenders' practices were putting customers at risk.
A review of 140 customer files found that, in more than 30 per cent of files, there was no evidence the banks had properly considered whether an interest-only loan was appropriate for the borrower.
ASIC said it had commenced follow-up investigations in certain cases which are ongoing.
"Where necessary, ASIC is considering enforcement action or other regulatory action," it said, however would not name the lender.