Responsible lending, and what still applies

For a decade, “responsible lending” meant a specific sequence. A licensee had to make reasonable inquiries about a consumer’s requirements, objectives and financial situation, take reasonable steps to verify that situation, and assess whether the credit contract — or a limit increase — was not unsuitable. Unsuitable, in the statute, meant the consumer could not meet the obligations without substantial hardship, or the contract did not meet the disclosed requirements and objectives. That sequence still exists in Chapter 3 of the National Consumer Credit Protection Act 2009 (Cth). What changed in the 2020s is how far it reaches, how prescriptive the regulator is about the steps, and which products now run on a modified script.

Two slogans have grown up, and both are wrong. One is that responsible lending is dead. The other is that every loan in Australia is still put through the post-Hayne, pre-2020 worksheet. The live system is less dramatic.

This is general information. Credit Made Simple is not a credit licensee and does not assess whether any particular contract is suitable.

The old sequence, briefly

The National Consumer Credit Protection Act started in 2009 and brought consumer credit under a national licensing regime. Chapter 3 attached conduct obligations to licensees who provide credit, or who give credit assistance — suggesting a particular contract, helping someone apply, suggesting they remain. ASIC’s Regulatory Guide 209 became the long explanation of what “reasonable” inquiries and verification looked like in the regulator’s eyes.

After the financial-services royal commission, the political weather favoured more verification, not less. Then a Federal Court decision in the Westpac case rejected the most expansive reading of what a licensee had to do with a borrower-declared living-expense figure. ASIC later rewrote RG 209 in a more principles-based voice. “Reasonable” was always a sliding word. After that litigation it slid more openly.

Consumers could, and still can, ask for a copy of the assessment. Many never do. The assessment is not a reason the loan is cheap. It is a record of whether the licensee turned its mind to unsuitability.

Design and distribution obligations, which arrived in 2021 for many financial products, sit next to this chapter rather than inside it. DDO is about whether a product is being marketed to the right class of people. Responsible lending, where it applies, is about whether this contract is not unsuitable for this consumer. A licensee can fail one and pass the other.

The 2020s argument

In 2020 the then government announced that responsible lending obligations would be removed from most credit, kept for small amount credit contracts and consumer leases, and replaced for other lending by system-level standards modelled on APRA’s approach to banks. A bill followed. Explanatory materials from that period are explicit: the intent was to confine Chapter 3 to SACCs, SACC-equivalent ADI loans and consumer leases, and to let a ministerial standard plus prudential rules do the rest.

That full design is not the law that now governs a standard personal loan. The bill-era rollback became a political fight, not a clean commencement. What did land, over the rest of the decade, was a series of smaller shifts in the same direction for some products and a hardening of the old rules for others.

Three shifts are worth naming without turning them into a scoreboard. First, ASIC’s guidance after the Westpac litigation no longer reads like a checklist that every file must resemble a forensic audit. Licensees still have to inquire, verify and assess; they have more room to decide what is reasonable for a given product and customer. Second, ADI home lending continues to be shaped heavily by APRA’s serviceability expectations — buffers, income haircuts, the institutional duty not to write loans the bank cannot defend. That is prudential gravity, not a Chapter 3 worksheet, and it is one reason how lenders assess serviceability is a different article from this one. Third, Parliament created modified responsible-lending rules for a new class of low-cost credit, built to bring buy now pay later inside the Credit Act without pretending a $400 clothing limit is a mortgage.

None of those shifts is “RL is dead.” A licensee that does not hold an Australian credit licence, or that suggests a particular contract without being authorised, is still in the wrong. A SACC written without the extra SACC inquiries is still a problem. An unsuitability assessment that was never done, where the Act still requires one, is still a problem.

What still applies, including SACCs

Chapter 3 has not been repealed. For credit that remains on the standard path, the three-step idea is intact: inquire, verify, assess unsuitability. The intensity of the first two steps is now more obviously scaled to the product. A twenty-year home loan and a small, short facility are not supposed to generate identical files. That was always implicit in the word “reasonable.” It is now explicit in the way regulators talk.

Small amount credit contracts were the category every version of the 2020s debate proposed to keep in the tight column. They still sit there. A SACC provider has extra rules on top of the ordinary unsuitability test: recent-SACC and default-SACC restrictions, protected earnings, the 20 per cent establishment and 4 per cent monthly fee cap on the amount advanced, and disclosure duties that do not apply to a bank card. Payday loans and SACCs is the product explainer. The point for this page is political as well as legal. When ministers said they would “cut red tape” in consumer credit, they did not mean the payday-lending tape.

Consumer leases for household goods have often travelled with SACCs in those debates. If you are being offered a rent-to-own washing machine rather than a loan to buy one, the conduct rules may be the lease version of the same story. Do not assume a lease is unregulated because it avoids the word “credit.”

Low-cost credit contracts — the 2025 vehicle for much of buy now pay later — are the clearest example of scaling without abolition. From 10 June 2025 those contracts are credit. Providers need a licence. They must assess unsuitability. If they elect the modified path, the Act eases some timing, specifies some inquiries, and, for limits of $2,000 or less, creates a rebuttable presumption that the contract meets the consumer’s requirements and objectives. Affordability can still be the reason the contract is unsuitable. A written unsuitability-assessment policy is mandatory on that path. That is not the 2012 process. It is also not a free pass.

Other products sit in between. Some credit will be assessed with bureau data, payroll feeds and a short declaration. Some will still involve statements and a conversation about living expenses. The fact of an approval does not tell you which process was used. If you want to know, ask for the assessment. The licensee’s obligation to provide it, where the standard rules apply, is one of the pieces that did not die.

Unsuitability is still the idea

The useful remnant, even where the worksheet has been slimmed, is the idea that a licensee should not put a person into a contract they cannot meet without substantial hardship or that does not do the job they said they wanted. That idea now appears in more than one instrument: Chapter 3, the modified LCCC rules, DDO target-market determinations, APRA’s expectations of ADIs, and AFCA’s approach to maladministration files.

AFCA does not need the 2018 version of RG 209 to exist in order to ask whether a firm’s assessment was fair in the circumstances. Complaints, IDR and AFCA is the process. The substance is often: what did they ask, what did they verify, what did you tell them, and was the contract always going to fail? Those questions are still askable for many products. They are not askable in the same way for every product. A complaint about a SACC that ignored protected earnings is a tighter statutory argument than a complaint about a low-cost contract that used the modified policy.

Hardship is the cousin, not the twin. A section 72 variation is about a contract that already exists. Responsible lending is about whether it should have been written, or written at that limit. Some files are both. A person can have an unsuitable loan and a later hardship right. Mixing the two in one angry phone call makes each weaker. Write them as separate problems if both are real.

How to read a lender’s claim

“We are no longer required to do responsible lending” is a sentence that should make you ask: required by which section, for which product, as of which date? Sometimes the speaker means “we no longer collect three months of statements for this small facility.” That may be true and lawful. Sometimes they mean “we do not assess whether you can pay.” That is a different claim, and for many products it is still wrong.

“This approval means you can afford it” is not a legal conclusion you should import into your own budget. An assessment of unsuitability is not advice to you. It is a licensee’s defence of its own conduct. The two are easy to confuse when the letterhead is a bank’s.

If you want a product explained rather than assessed, stay on this side of the line. If you want someone to suggest a particular contract, that person needs to be licensed or authorised, and their suggestion is credit assistance. We will not make it.

Responsible lending, in 2026, is a narrower, more product-specific duty than the version that sat in a royal-commission transcript. It is not a museum piece. SACCs still carry the thick rulebook. Low-cost credit carries a modified one. A great deal of ordinary lending still has to be not unsuitable, even if the file that proves it is thinner than it was. The rest is slogan. Ignore the slogan, ask for the assessment, and take the unsuitability question to a counsellor or to AFCA if the facts support it — not to a banner that has already decided the law is over.