ASIC Regulatory Guide 209 Credit Licensing: Responsible Lending Conduct (Australia) rg209-c-capacity-substantial-hardship: Determine whether the consumer can meet the repayments from income after their necessary outgoings without substantial hardship, applying realistic assumptions about spending reductions, buffers and the repayments across the life of the loan

What does rg209-c-capacity-substantial-hardship require?

The capacity assessment asks whether the consumer can meet the financial obligations, including the highest repayments the product may require (after an interest-only or honeymoon period, or at a reasonable interest rate buffer for variable loans), from their income after meeting the outgoings they cannot reasonably reduce. Substantial hardship means more than inconvenience: it includes having to sell assets the consumer needs (the family home, a car needed for work), going without essentials, or falling behind on other commitments. Consumers can often reduce discretionary spending, and the licensee may take realistic, achievable reductions into account, but should distinguish outgoings that are necessary to live and participate in the community, should not assume reductions that would involve hardship, and should make the consumer aware of the assumptions on which the assessment relies. For products with variable or escalating obligations the assessment considers the likely future position, and joint applicants are considered together with attention to how each will meet the obligations.