Insight Report: Responsible Lending – Changing Regulatory Environment and Industry Practices

Date: 2015-09

“Governments and regulatory bodies across the world have enforced numerous measures to curb irresponsible lending practices by banks and other credit institutions. These bodies have also taken initiatives to create consumer awareness about prudent borrowing to avoid excess debt. Excessive fees and interest rates on loans, lack of disclosure of products’ terms and conditions, and deceptive debt-collection practices by banks and credit institutions contributed significantly to the financial crisis in the US and other developed economies in 2008–2009. The phenomenon of responsible lending has assumed increased urgency since the global financial crisis, and has become a priority for governments and other regulators in many countries which are increasingly concerned about the consequences of irresponsible practices in the financial sector, particularly in banking.
The US was the country most affected by the financial crisis, and was at the forefront of enforcing responsible lending practices in the banking industry to restore consumer confidence in, and stability to, the industry. In this regard, the government and regulators have implemented several regulations, including the Credit Card Act 2009, the Dodd-Frank Wall Street Reform (widely known as Dodd-Frank) and the Consumer Protection Act in 2010, as well as the Truth in Lending Act, 2010 Regulation Z for property loans. The European Banking Authority, along with a number of European economies such as the UK, Germany and Poland, have also enforced several regulations. Banks and credit institutions are now required to provide customers with understandable information about the risks and benefits of credit products so they can make informed decisions and protect themselves from illicit practices.

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