The Australian Securities and Investments Commission (ASIC) published dozens of submissions on Monday as it is in the process of updating its responsible lending guidance, which has not been altered for nearly a decade.
ASIC aims to spell out what lenders could expect when someone applies for a mortgage, personal loan, or credit card.
The move came less than a week after ASIC Chairman James Shipton said that the corporate regulator would hold public hearings later in the year to quiz banks over lending.
"For the first time as part of this process, we will be holding public hearings to robustly test some of the issues and views that have been raised in submissions," Shipton told the public.
The Australian Banking Association (ABA), meanwhile, said it would not be in customers' interests for ASIC to set minimum standards for inquiries into and verification of a customer's financial situation.
"An attempt to impose a 'one size fits all' minimum approach is not appropriate – there is a danger this becomes a 'checklist' approach," the ABA said in its submission.
The ABA said having an inflexible set of minimum requirements may lead to lenders being overly cautious and result in delays for people applying for credits.
The group said it was concerned about ASIC's proposal to take a more prescriptive approach to some aspects of its responsible lending guidance. The method might negatively impact competition, including discouraging customers from switching products or financial institutions, according to ABA.
Some of the banks said they would face additional costs to assess applications and change their systems and processes, which would likely affect the cost of credit for consumers.
"It could be expected that a large and detailed list of steps and greater document review requirements would result in increases to customer waiting times for approval, delays in the availability of credit and increased customer costs," Westpac said.
The corporate regulator announced that it would be holding a public consultation in August before updating its guidance about responsible lending obligations.
