Private Lending Regulations
There is a common misconception among the general public that private finance lenders are not as trustworthy or as well-regulated as traditional financial institutions, when in fact they are subjected to similar Australian standards as banks. In fact, private lending is commonly referred to as “the oldest type of mortgage lending” because of its prevalence in the financial scene.
The different government bodies that are involved in regulating the Australian financial scene are ASIC and APRA.
APRA
The Australian Prudential Regulation Authority (APRA) is responsible for overseeing banks, general insurance and re-insurance companies, building societies, credit unions and most superannuation funds. APRA is also the Australian financial sectors national statistical agency.
Banks are primarily regulated under the legislated Banking Act 1959, with other APRA-enabling legislation including the Australian Prudential Regulation Act 1998 among others.
ASIC
The Australian Securities and Investments Commission (ASIC) is the regulator for Australia’s corporate and financial services. They work to ensure that the financial sector is transparent and fair to those in the industry, and are supported primarily by consumers and investors. They act as the consumer credit regulator, and so provide licenses for all companies that are engaged in credit activities – this can include both bank and non-bank lenders.
The legislature that gives ASIC its authority in the Australian financial scene is the Australian Securities and Investments Commission Act 2001 under the Commonwealth’s Corporations Act 2001.
Another piece of legislation that financial credit institutions must comply with is the National Consumer Credit Protection Act 2009. The primary concept of this is ‘responsible lending’, similar to legislation of the ‘responsible service of alcohol’. Responsible lending at its core means that “credit licensees must not enter into a credit contract with a consumer, suggest a credit contract to a consumer or assist a consumer to apply for a credit contract if the credit contract is unsuitable for the consumer”, according to ASIC.