On Friday (25 September), the federal government unveiled a plan to overhaul responsible lending laws by shifting from a “lender beware” model to a “borrower responsibility” model and stripping ASIC of its enforcement powers.
The announcement came after growing concerns that responsible lending obligations were too onerous on lenders and stifled access to credit. Indeed, Reserve Bank governor Philip Lowe last month criticised recent interpretations of responsible lending obligations, stating that banks should not bear total responsibility for a borrower’s failure to repay their loan.
Major bank reaction
Similarly, ANZ CEO Shayne Elliott called for further clarity around the responsible lending obligations of Australia’s credit providers earlier this month.
Following on from Friday’s (25 September) announcement that the responsible lending obligations would be rolled back, several lenders – including ANZ – welcomed the move.
Mr Elliott was among the first of the bank CEOs to respond to the announcement, commenting: “The simplification of Australia’s credit framework will speed up the flow of credit to Australians during these difficult economic times while still providing the necessary protections for Australians when accessing credit.
“The government, industry and regulators have shown flexibility in the response to the pandemic, and this decision will support the economy and customers at a crucial time,” he said.
The ANZ CEO said the bank would work with the government and relevant regulatory bodies to “understand the changes in more detail, including any practical changes that may be required to lending processes”.
Similarly, Westpac CEO Peter King welcomed the proposed changes, suggesting that the “significant government initiative” would “reduce red tape for consumers seeking a loan and, importantly, speed up the process for customers to obtain approval for a loan”.
“These enhancements would enable us to assess loan applications across specific lending products rather than a ‘one size fits all’ approach,” Mr King said.
“We will be able to streamline our processes, making it an easier and simpler process for customers. It will also play an important role in ensuring access to credit for businesses wanting to invest and grow. SME businesses drive employment, and this is very important for economic recovery.
“It is in our interest to only lend to customers who are in a position to meet their financial obligations. The government proposal strikes a good balance between reducing regulatory burden on credit providers while ensuring we have rigorous credit processes in place.”
NAB and CBA CEOs had not issued a public statement at the time of writing.
Banking associations look for further details
The banking associations also tentatively embraced the news, with Australian Banking Association chief executive officer Anna Bligh stating: “It is important to ensure that these changes strike the right balance between maintaining strong consumer protections while providing credit into the economy at a critical time.
“Australian banks understand their role in supporting customers and rebuilding the economy. Ensuring the flow of credit to families and businesses, with the right customer protections, is paramount”, Ms Bligh said.
She continued: “Banks look forward to working with the government to ensure the legislation works for both customers and the broader economy.”
Likewise, the CEO of the Customer Owned Banking Association (COBA), Michael Lawrence, stated that while the objective of the revocation of responsible lending obligations was welcomed, the association was looking forward to “seeing the detail of the government’s proposals”.
“Customer-owned banking institutions have always been responsible lenders – putting our customers first is part of our DNA. We certainly don’t need prescriptive and complex laws to make sure that we lend responsibly,” Mr Lawrence said.
“Our sector’s sound lending practices are also subject to strong prudential oversight by APRA,” he said.
Mr Lawrence continued: “There are multiple layers of regulation applying to lending, so simplifying these regulations while maintaining strong consumer protection, particularly for vulnerable consumers, is very welcome.”
The COBA CEO concluded: “This is good news for borrowers and lenders. Applying for a loan will be a simpler process.
“Unnecessary and duplicative regulation hurts consumers because resources are diverted away from investment in product innovation, better service and better pricing.
“Consumers can also be subject to unnecessary delays and frustrating paperwork. There is also the broader deadening effect on the economy’s dynamism of too much regulation.”
Heritage Bank CEO Peter Lock echoed these comments, adding that borrowers could benefit from the change.
Mr Lock said: “By removing unnecessary costs and regulation, there is an opportunity for financial institutions to reinvest these resources into finding more value for members through product innovation, sharper pricing and improved services.
“However, in the face of any legislative changes, it’s vitally important that lenders continue to keep responsible lending practices top of mind and ensure there is no disparity between lender and borrower obligations.”
The impact on non-banks and brokers
Non-bank lenders and lending platforms have also welcomed the news.
Yanir Yakutiel, CEO of alternative lender Lumi, commented that relaxing the laws would “allow banks and institutions to make decisions based on the merit of applications as opposed to being shackled by regulations”.
“Any relaxation of this cumbersome red tape is a good thing and should be encouraged,” Mr Yakutiel said.
“Relaxing constraints on lending will, to a large degree, impact lending for residential mortgages and have less impact on commercial lending. Anything that will increase the flow of credit into Australian households and help prop up the economy is very positive,” he said.
Likewise, Arun Maharaj, CEO of mortgage platform HashChing, suggested that the changes would “speed up processing times, making things more efficient for all involved”.
Mr Maharaj also noted the benefit the change would have for mortgage and finance brokers, too.
The HashChing CEO said: “Consumers on our platform are increasingly looking for faster approval times, and these changes will certainly make it easier for our brokers to deliver on this.
“Almost every industry has in some way been affected by the pandemic, and brokers are no exception. I’m confident that these changes will help to bring some positive relief in what has been an exceptionally difficult year.
“Brokers will be given the ability to be even more productive and effective in their dealings with customers… This news, together with open banking coming into effect, is part of a positive shift towards an industry that is truly technology driven and savvy.”
Bank assessment process partly to blame for SME lending woes, says ASBFEO
The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, said the changes would also “give small businesses the confidence they need to seek funding to get through this crisis, so they can grow and employ”.
Noting that support measures are tapering off over the coming months (with JobKeeper having reduced by $300 from this week, 28 September), Ms Carnell said changes that provide more access to finance are “critical to small-business survival”.
“Since the banking royal commission, small businesses have faced an uphill battle to secure a loan, due to unrealistic serviceability requirements from the banks,” Ms Carnell said.
“The pendulum has swung too far, and now is the time to correct this imbalance, which is harmful to small businesses.
“Even in the best of times, many small businesses struggle to secure finance, with a recent Sensis report revealing that of the dwindling number of small businesses that applied for a loan in the three months to August, about one in four had been knocked back.
“There’s a good chance the onerous small-business loan application and bank assessment process is partly to blame,” she said.
Ms Carnell continued: “We are aware of small businesses that have been asked for all sorts of documentation by the banks – even for loans that have been 50 per cent guaranteed by the federal government – including director guarantees, which really means the family home.
“It’s no wonder small-business owners are reluctant to borrow,” she said.
While mortgage lenders have broadly welcomed the intent of the federal government’s proposal to remove responsible lending laws from the NCCP, consumer groups have claimed that the move has “disaster written all over it”.
ASIC has yet not responded to the news.
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.