The National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 was recently introduced into Parliament and read for the first and second time.
The bill relates to the amendment of laws relating to consumer credit and consumer leases, and include the proposal to scrap responsible lending laws and extend the best interests duty to more credit assistance providers.
In response to the introduction and first reading of the bill, federal shadow treasurer Dr Jim Chalmers told Parliament that the bill was about “undermining” the banking royal commission and consumer protections in responsible lending.
Dr Chalmers argued that the federal government is taking measures that were specifically recommended against in the banking royal commission, namely in recommendation 1.1, which stated that the National Consumer Credit Protection Act 2009 should not be amended to alter the obligation to assess unsuitability.
“I think that speaks volumes about whether or not the government’s heart is actually in doing the right thing by real people when it comes to the banking system and to the financial system more broadly,” he said.
However, Dr Chalmers added that: “We’re prepared to support the main thrust of this bill, where it genuinely implements the recommendations of the banking royal commission. But there are a couple of things that need to be cleaned up. We’ll try to do that via the usual parliamentary processes.”
Shadow assistant minister for financial services Matt Thistlethwaite also weighed in on the proposed changes, and expressed that the Labor Party is “deeply concerned about that proposal”.
“It is shameful that the government intends to ignore the number one recommendation of the royal commission, and that is to ensure that Australia maintains its responsible lending obligations and laws on banks and financial institutions so that predatory lending – that virus that spread throughout the world in the lead-up to the global financial crisis – and the effect that it had on many families, workers, businesses and the international financial system, can be avoided in the future,” Mr Thistlethwaite said.
Shadow assistant minister for treasury Dr Andrew Leigh argued that the “banks themselves didn’t ask” for the scrapping of responsible lending obligations, and noted that consumer groups have expressed concerns about the proposal and its consequences for consumer protection.
Addressing the Parliament, Dr Leigh asked: “Does Australia really need more irresponsible lending? Is that the real need of the Australian economy right now – a surge of irresponsible lending? Well, consumer groups don't think so. The banks themselves didn't ask for it.”
Assistant Treasurer Michael Sukkar read the bill for a second time in Parliament after it was introduced, reiterating the government’s reasoning that the timely access to credit is critical to the Australian economy’s success, particularly as it recovers from the coronavirus pandemic.
He said the bill would amend the act so that the existing responsible lending obligations apply to only small amount credit contracts and consumer leases, and added that the bill would replace the “prescriptive” one-size-fits-all approach of current laws and provide lenders with the ability to assess each applicant for credit on a case-by-case basis.
“However, this flexibility will not diminish the consumer protections in place and, for some products, enhances these protections,” Mr Sukkar said.
“The bill provides the minister with the power to determine new lending standards. The new regime will apply to non-bank lenders, as banks will continue to be regulated by APRA (Australian Prudential Regulation Authority).”
Mr Sukkar added that lenders that fail to comply with credit assessment processes that they have implemented would breach APRA standards, which would allow borrowers access to the Australian Financial Complaints Authority (AFCA) for “free dispute resolution and restitution”.
Access to finance needs reform: HIA
The government’s proposal has received support from a construction industry association, which said that the constraint on finance was a key contributor to a decline in the volume of home building by almost 20 per cent in 2018.
Housing Industry Association (HIA) chief economist Tim Reardon argued that access to finance requires reform, and that banks should be responsible for determining the capacity of borrowers to service a mortgage instead of government agencies.
“Access to finance has tightened over the past two years, despite evidence of a problem,” Mr Reardon said.
Mr Reardon’s comments have followed the HIA attending an industry roundtable led by My Sukkar, where the main agenda was to explore ways to improve access to finance to allow more first home buyers to enter the market.
“The time frame taken for processing loan applications in 2018 grew from two weeks to two months,” Mr Reardon said.
“First home buyers have been forced to delay their entry into the housing market as additional barriers to lending were introduced. This is despite evidence that lending for a residential mortgage is anything other than ‘unquestionably strong’.
“Since the global financial crisis, there has been a decade-long program of reforms in the pursuit of an ‘unquestionably strong’ financial system.
“This ‘belt and braces’ approach to regulation has reduced risk in the financial system, but it has come at a cost to first-time home buyers.”
Mr Reardon said regulation has forced banks to remove flexibility in the mortgage market.
“The legislation will begin to restore a degree of flexibility in the lending market that will allow millions of dollars to be injected into the economy at a time when Australia needs it most,” he concluded.
[Related: RBA backs responsible lending reforms]
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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.