From 1 July 2010 (1 January 2011 for ADIs and RFCs), a lender must not make a loan unless it has complied with the responsible lending (unsuitable loans) provisions of the NCC. Technically, this will mean all pipeline loans made pursuant to contracts dated after 1 July 2010 will need to have passed the 'not unsuitable' test. This requires a written assessment (which can be electronic) stating the period for which the assessment applies (usually 90 or 120 days).

Although lenders may need to re-assess (or at least record that an assessment has taken place), brokers will not need to rework so long as they provided credit assistance prior to 1 July 2010. In this regard, brokers' credit assistance usually ends once a loan is approved.

Regulations made on 30 June 2010 provide that for residential investment loans, if the offer was made before 1 July 2010, so long as the offer is accepted before 1 October 2010, the loan documentation need not comply with the format for NCC regulated loans, and the responsible lending (unsuitable loan) provisions will not apply.
Loan assessment – need for writing

Lenders, lessors, brokers, and other credit assistants are required to assess whether a loan is unsuitable from 1 July 2010 (except for ADIs and RFCs).

It's important to remember that the law requires this assessment to specify the period it covers. This implies that the assessment must be in written form (can be electronic). The requirement for a written assessment specifying a validity period is perhaps the major change for most businesses, as most had already been making an assessment or a preliminary assessment as to whether a loan was unsuitable (or for MFAA members, whether a loan was appropriate).

Businesses need to ensure they have systems to capture the information gathered for the assessment and the verification process.

This article is available in full at Mondaq.