Feedback sought on new expenses standard

While the financial services is currently reviewing and updating its responsible lending guidance (RG 209), which will seek to update the role of expense benchmarks in the process for verifying a consumer’s financial situation and clarify the types of information that are available to verify different aspects of a consumer’s financial situation, LIXI is also seeking to update its living expenses categories in its new data standards, LIXI2.

The company first proposed changing and updating its data standards – used by many lenders for their verification and/or serviceability processes – “to better support credit licensees’ efforts to fulfil their responsible lending requirements” last year. This was triggered by the interim report of the banking royal commission (which questioned the Household Expenditure Measure and how lenders verify expenses), updates to HEM, better capture of transactional data and lender changes to living expense categories.

Following feedback from LIXI members and contributors, the company has now released its proposed changes to its 2016 data standards to form the basis of the LIXI2 data standards.

While the company has acknowledged that the new data standards are being consulted on ahead of the finalisation of the regulator’s guidance around how expenses are used in mortgage applications (and ahead of ASIC’s public hearings on the matter later this month), it added that industry needed a common path forward sooner rather than later. 

It is hoped that the LIXI2 standards would be finalised by the company’s annual forum on 18 September. However, the adoption of the new standards by lenders would likely be a longer-term process.

With almost 500 elements and more than 2,000 attributes, the LIXI2 standards cover a range of application data for applicant types including individuals, trusts and companies. 

Among the key changes is a proposal to expand the expenses categories from 12 living expenses and three commitments, to 19 living expenses categories and three commitments.

The new categories proposed would be:

1. Childcare (including nannies and non-compulsory pre-school)
2. Clothing and personal care (including travel goods and handbags)
3. Groceries (including food, toiletries and cleaning products but excluding alcohol)
4. Medical and health (including healthcare services, hospital charges and ambulance insurance)
5. Health insurance (including hospital, medical and dental insurance) 
6. Recreation and entertainment (including restaurant meals, alcohol, coffee, electronics, toys, magazines, books, holidays, recreational gambling and travel insurance)
7. Telephone, internet, pay TV and media streaming subscriptions (including Netflix and Spotify)
8. Transport (including public transport, taxis and ridesharing as well as running costs for essential vehicles, including vehicle insurance but excluding transport for overseas holidays)
9. Public or government primary and secondary education (including school tuition, sports fees and compulsory kindergarten)
10. Higher education and vocational training (including TAFE and vocational training fees)
11. Primary residence (costs associated with primary residence, including owned or rented premises, including rates, furnishings, home insurance, personal belongings insurance, appliance insurance and contents insurance)
12. Investment property (costs associated with any property owners for investment purposes, including property insurance, landlords insurance, personal belongings insurance and appliance insurance for the investment property)
13. Secondary residence (any costs associated with secondary residence, including land tax, body corporate fees, heating, electricity, furnishings, and including property insurance, landlords insurance, personal belongings insurance and appliance insurance for the secondary residence)
14. Pet care (including grooming and vet fees)
15. Sickness and personal accident insurance, life insurance 
16. Other insurance (including insurance of recreational vehicles, pet insurance and other insurances not classified elsewhere)
17. Other (items not covered in other categories)
18. Private schooling and tuition (including fees and sports fees for private schooling)
19. Land tax and body corporate fees on owner-occupied principal place of residence (excluding investment properties and secondary residences) 

Other commitments:

1. Board 
2. Child maintenance (expenses for non-dependent children)
3. Rent (on primary residence)

LIXI commented: “There were previously 15 categories because three (Rent, Board and Maintenance) were collected as part of ‘other commitments’.” 

“There is still a net increase of seven, but these are largely because of changes to HEM that require some items separated, for example, private school expenses. 

“Of course we could aggregate more all the excluded items – for example, private schooling, land tax, life insurance, etc. – but they are quite unrelated and do not make a logical category,” it stated.

Writing in a post on LinkedIn, LIXI CEO Shane Rigby commented: “After further industry feedback, the proposed set of standard living expense categories has been refined. The 12 categories that were published in 2016 would expand to 19 categories under this proposal. 

“LIXI members are encouraged to review the proposal and provide any feedback before these are included in the LIXI2 data standards.”

Mr Rigby added that any non-LIXI members may also submit feedback to the new expense proposals to him by the end of August.

According to LIXI, while the LIXI2 standards are expected to be finalised in the next month so that lenders have an agreed method for expenses moving forward, should any changes arise from the new responsible lending update from ASIC, these will likely be included, too.

[Related: ASIC to host new set of public hearings]