New law to crack down on ‘predatory’ credit lending

According to Treasurer Scott Morrison, the Treasury Laws Amendment (Banking Measures No. 1) 2017  bill would force credit card providers to “scrap unfair and predatory practices” by:

• requiring affordability assessments to be based on a consumer’s ability to repay the credit limit within a reasonable period (from July 2018);
• banning unsolicited offers of credit limit increases (from January 2019);
• simplifying how credit card interest is calculated, and requiring credit card providers to have online options to cancel cards or to reduce credit limits (from January 2019).

“This legislation will protect vulnerable Australians from predatory behaviour, which seeks to make a quick buck from people’s misfortune and compound their financial hardship,” Mr Morrison said.

“This is the first phase of reforms outlined in the government’s response to the Senate inquiry into the credit card market which seeks to put more power in the hands of consumers.”

The government has also claimed that the bill would “boost competition” in the banking sector by easing entry requirements and allowing smaller lenders to refer to themselves as banks, which the Treasurer said was “a significant change that will entice new lenders and challenger banks to enter the market”.

The change will apply to all banking businesses with an ADI licence.

“This will provide greater choice for Australians and put downward pressure on the cost of banking products and loans,” Mr Morrison said.

New powers over non-bank lenders

Moreover, the bill is set to further expand the powers of the Australian Prudential Regulation Authority (APRA) by providing the regulator with new reserve powers over the lending activities of non-banks. This will provide APRA with the necessary flexibility to address risks to financial stability if they emerge and give it the ability to gather data to monitor non-bank lenders.

Mr Morrison said at the second reading of the bill last year that the new rule-making power is not a new “peacetime” regulation of non-ADI lenders, saying that it was “appropriate” for those that have no depositors to continue to run their businesses without being subject to ongoing prudential supervision by APRA. 

However, he noted that “international experience has demonstrated that risks can emerge from the non-ADI lending sector that threaten the stability of the financial system. It is appropriate for APRA to have the power to move decisively to curb these risks should they ever arise”.

The latest bill accompanies a host of reforms introduced by the federal government, which has equipped APRA with new powers.

The government recently passed the Banking Executive Accountability Regime (BEAR) bill and a crisis management bill that have endowed APRA with powers to enforce the rules embedded in the respective legislation.

“Together, this suite of legislation will help to ensure that Australia’s financial system is competitive, accountable and unquestionably strong,” Mr Morrison said.