April 3 2019
Expense Verification Workshop #2 - The Deep Dive
Expense Verification under the NCCP Act – requirements unclear
Credit licensees must comply with responsible lending laws, which require them to make reasonable enquiries about, and take reasonable steps to verify, a credit applicant’s expenses (as part of assessing the applicant’s ‘financial situation’). Neither the law nor the regulatory guidance is prescriptive as to the extent of that enquiry or the steps that are reasonable and must be taken to verify expenses.
Given the Federal Court proceedings, the CP309 process and the potential for updates to RG209 and the NCCP legislation, and the advent of CCR and Open Banking, the stage is set of 18+ months of uncertainty. The Expenses Verification Framework Initiative is geared to supporting credit licensees to manage through that time.
Given the lack of resources to manage this level of change – we believe shared learning will manage those changes more efficiently and effectively than each lender separately re-inventing the wheel.
Not just a compliance issue…
The Expense Verification Framework Initiative is tackling expense verification from a wholistic viewpoint from a consumer and credit licensee perspective. While expense verification has a primary goal of solving how expenses are verified for responsible lending – is a compliance question – there is a natural focus on getting the best possible read on “representative expenses”. However, the reality is that this brings in to play a whole raft of consumer experience and data governance issues as well as operational and marketing questions. Issues arise about the use of that data for credit risk and marketing (secondary purposes) and the fact that data supplied – if via the Consumer Data Right – is opt-in and not an obligation.
The teams who will be interested to attend….
Product teams: the core consumer experience custodians
Credit Risk teams: because they are often tasked with meeting NCCP obligations in an operational sense.
Compliance teams: because they are the ultimate owners of responses to NCCP.
Open Data teams: because they are most across the consent provisions and intent of the Consumer Data Right and will be most likely tasked with compliance with the spirit of those consents
Operational/Digital teams: because decisions made about how to execute expense verification materially alter their key metrics
The Approach Workshop: Process and Outcomes
In the workshop, we apply a ‘Design Thinking Process’ to tackling challenges and opportunities in using transactional data (bank statements) and benchmarks (HEM) in expense inquiries and verification. This process encourages a team approach to brainstorming and promotes multi-disciplinary teams that bring in varied perspectives. A sample of the 25+ case studies developed will be worked through on the day depending on priorities of the teams in the room.
The results will be added to the workshop materials from the Feb 13 workshop and will become a resource for all participants.
Individuals or organisations who would like to join the process and participate in the Melbourne workshop are most welcome and will be provided with full access to all the detailed work product of the Approach Workshops.
Attending the workshop delivers:
Shared learning from the case studies and design thinking approach.
Access to the learning resources – the Expense Verification primer and the case studies (via the Verifier portal).
Access to the shared discussion on the case studies on an ongoing basis.
Ability to shape the Data Phase of the Initiative – for more information please contact the Verifier team.
BIG ISSUES TO SOLVE
We worked through case studies and real transactional data in the Approach Workshop, and participants identified the following big issues to solve:
Benchmarks/models are needed that are fit for purpose and current.
Bank data (statements) are hard to interpret and reviewing the data can feel very invasive to consumers.
Credit licensees cannot assume that consumers will be willing to share transaction data under the Open Banking reforms. It is an opt-in regime – so credit licensees must plan for consumers who do not opt-in to share their transactional data.
Open Data and greater use of transactional level data create additional Primary v Secondary use challenges. This requires broader data governance thinking and focus on consumer expectation and trust.
REALLY BIG IDEAS
Participants generated a number of Really Big Ideas, which will continue to be developed as part of this Initiative. Those ideas can be categorised as supporting further exploration of a radically simple approach that distinguishes between at-risk consumers and those who are not at-risk.
THE DATA PHASE – REGISTER YOUR INTEREST
The next phase of Expense Verification Framework Initiative is expected to be a data-driven study phase, with three objectives:
Radical Simplicity data-driven test and response: It is clear that shaping regulatory expectations can only be done with data-driven evidence, to support credit licensees responses to CP309.
Shared Complexity data-driven test of good practice: This would then enable credit licensees to fast track better internal policies and support an ongoing continuous improvement cycle, particularly in the context of an anticipated 18 months of regulatory uncertainty about the expenses aspect of responsible lending obligations.
Approaches to Quantified Compliance Assessment: For internal and external stakeholders (including AFCA) to review expense enquiry and verification outcomes.
Beyond the Verifier Expense Verification Framework Initiative, the expectation is that Verifier and other service partners will respond to the shared good practice areas and build tools (or enhance existing tools) to support the good practice guides. These solutions and the pilots of those are outside the scope of the Initiative but contemplated by it.
However, the Initiative is a necessary first step to supporting that much-needed activity.