The Australian Prudential Regulation Authority (APRA) first learned that the federal government was pondering changing responsible lending obligations and was considering the options available to them in early August, according to APRA chair Wayne Byres.
Appearing before the House of Representatives standing committee on economics’ review of financial regulators on Friday (23 October), Mr Byres walked the committee through a timeline of discussions it conducted with the government before it announced its proposal to scrap responsible lending laws from the National Consumer Credit Protection Act 2009 (NCCP).
The government has said it hoped the reform would simplify the credit process by shifting from a “lender beware” model to a “borrower responsibility” model, which could reduce risk.
Noting that the merits of responsible lending obligations have invited robust discussions over many years between the prudential regulator, the Australian Securities and Investments Commission (ASIC), the Reserve Bank of Australia (RBA), Treasury, and the Council of Financial Regulators, Mr Byers addressed the committee’s queries about when APRA first learned about the government’s intention to propose the scrapping of the laws.
“I think we learnt in early August that the government was thinking of making changes and was considering what options might be possible,” Mr Byres said.
“I spoke with the Treasurer (Josh Frydenberg) directly in early September where he asked me my opinion on a couple of options. And then obviously closer to the budget, a few days before the budget, I spoke with the Treasurer again, and he confirmed what his position was.”
However, when asked by the committee if APRA provided any policy or impact analysis of the proposed changes (for instance, its impact on low-to-middle income households) Mr Byres said APRA did not provide advice on that.
When questioned on whether APRA informed the Treasurer that winding back the responsible lending laws would be in contradiction of the banking royal commission’s recommendation on the matter, Mr Byres said it not do that.
“No, I didn’t do that. I think he [the Treasurer] is very aware of the royal commission’s recommendations,” Mr Byres said.
“The discussion that I had with the Treasurer was really around the nature and strength of the APRA standards and what would change, if anything, if the responsible lending obligations were removed but the existing APRA requirements were maintained.
“As I said, the Treasurer’s announcement makes clear that he’s expecting APRA will continue to regulate lending and oversee lending in accordance with the existing standards.”
Asked if it was APRA’s role to provide the government with advice on the impact of a change of this “magnitude”, Mr Byres said it was not.
“No, not really, because it’s dealing with a conduct issue and we’re a prudential regulator. We were asked some questions about how our framework worked and we were asked for some reflections on where potential duplication was, but it’s not our role to actively provide advice on matters which, up until that point, were very much an ASIC responsibility,” he explained.
When Mr Byres was asked if APRA would have recommended the scrapping of the responsible lending laws if the Treasurer had not approached him, Mr Byres responded: “We were not advocating for change.”
When asked if APRA has ever, at any point, advocated for the scrapping of the laws, Mr Byres said: “No, because again, I don’t think it’s for us to advocate a change in laws that are matters for the Parliament and where there is another responsible regulator.”
Noting that ASIC commissioner Sean Hughes had told the hearing earlier that day that he did not have prior knowledge of the government’s proposal, Mr Byres was asked by the committee if he thought it “strange that ASIC wasn’t consulted at all and you were”.
In answer, the APRA chair outlined that he did not have a view on the matter.
“It’s up to the government to decide on who it consults,” Mr Byres explained.
“I don’t know who else the Treasurer consulted or didn’t consult. He asked me some questions about APRA, APRA standards and options for how APRA standards might be applied. That’s what I gave advice on.”
Supervision of non-banks
Later in the hearing, Mr Byres emphasised that if the government’s responsible lending changes are enacted in law, ASIC will continue to oversee providers of credit that are not APRA-regulated banks, such as non-bank lenders.
He said that for the non-bank lender sector, the government is proposing for replacement obligations to be put in place of current responsible lending obligations, which would be based on the current APRA standards that apply to banks.
“So, the intention is that – and I think it’s really important, and this was in the Treasurer’s announcement – APRA will continue to regulate banks and other authorised deposit takers in accordance with our existing standards,” Mr Byres said.
“The Credit Act will be amended with some new obligations that replace the responsible lending obligations that are based on APRA standards, but the supervision and oversight of those when it comes to non-banks will remain with ASIC.”
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Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.
Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.