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Accountants could be pressured into verifying their clients’ ability to repay a loan under the government’s plan to wind back responsible lending obligations, sparking liability concerns.
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Accountants at risk under responsible lending reforms
19 October 2020
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CPA Australia has urged the government to reconsider its proposal to reform credit regulations, warning that accountants could be forced to pick up the slack from lenders who transfer due diligence onto borrowers.
Under the plan, the current practice of “lender beware” will be replaced with a “borrower responsibility” principle, with the government hoping that the reduction of extensive information and checks required by lenders will help speed up loan approvals and inject credit into the economy.
Keddie Waller, head of public practice at CPA Australia, believes such reforms could lead to a return of a practice where banks request accountants to sign off on a client’s ability to repay a loan as part of the application process.
“If a ‘responsible borrower obligation’ is implemented, we think some lenders may require borrowers to have their capacity to repay verified by an accountant,” Ms Waller told Accountants Daily.
“The proposed reforms may also result in lenders encouraging borrowers to declare that a proportion of the credit is for business use, and asking an accountant to verify this.
“The responsibility of ensuring that a borrower has the capacity to repay a loan must not be outsourced to accountants.”
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Under the National Consumer Credit Protection Act, signing a capacity to repay certificate or other similar declarations could be a breach of the law unless an accountant has an Australian credit licence.
ASIC had warned of the practice over a decade ago, noting that such a declaration “shifts the risk of credit assessment from the lender to the accountant”, opening up accountants to potential legal action where the client defaults on the loan.
Ms Waller said lenders should continue to complete appropriate due diligence on a borrower, and has urged accountants not to be pressured into providing such verifications or declarations.
“Assessing a borrower’s future capacity to repay a loan requires an assessment of historical financial data and other forward-looking information, and ultimately involves a degree of speculation. We have recommended to CPA Australia members that they do not provide this service due to the risks involved,” Ms Waller said.
“An accountant who verifies that a borrower has capacity to repay a loan could potentially face legal action if the borrower defaults, and this causes economic loss for the lender.
“In these circumstances, the borrower could allege that they did not understand the implications of the loan documentation or that the loan obligations were not properly explained to them. Meanwhile, the lender could allege that the accountant failed to take reasonable care in making their assessment.”
The reforms are set to kick in from 1 March 2021, provided legislation passes Parliament.
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