Does your benchmark measure up?

Prepared by Julia Winzar

ASIC’s focus on the responsible lending practices of lenders and brokers continues with recent enforcement action against a consumer lease provider, Motor Finance Wizard.
The key concern was Motor Finance Wizard’s use of an internally-generated benchmark to determine its customer’s living expenses and therefore the customer’s ability to make payments under the consumer lease. The benchmark was used by Motor Finance Wizard instead of obtaining information from the customer about their actual living expenses. In addition, the benchmark relied upon was considered to be unrealistic, with suggested living expenses of $185 per week for singles and $280 per week for couples.

Motor Finance Wizard’s process for determining its customers’ capacity to repay its consumer leases/loans involved:

Identifying the customer’s income using bank statements (or other records).
Identifying the customer’s liabilities using its internal benchmark for determining living expenses and including any periodic liabilities disclosed by the customer.
Unfortunately, this process resulted in Motor Finance Wizard’s failing to include some critical living expenses such as utilities, childcare and transport in its assessment of a customer’s liabilities.

Motor Finance Wizard was required to give ASIC an enforceable undertaking, under the terms of which, it was required to pay over $11 million in refunds and write-offs, make a $100,000 payment to a community benefit program and appoint an independent expert to review its existing business operations.

As can be seen by this outcome, the use of a benchmark should be approached with caution and should not be considered to be an alternative to obtaining information from your client regarding their actual expenses.