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Responding to the interim report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Suncorp Group has submitted that extending responsible lending obligations would create “significant risks of unintended, adverse policy outcomes”.
In his interim report, Commission Kenneth Hayne posed questions to lenders regarding whether responsible lending obligations should be amended.
Commissioner Hayne requested responses to the following questions relating to compliance with responsible lending obligations under the National Consumer Credit Protection Act (NCCP):
- Should the test to be applied by the lender remain “not unsuitable”?
- How should the lender assess suitability?
- Should there be some different rule for some home loans?
In response, Suncorp has warned that “to extend or strengthen responsible lending laws as they apply to home mortgage lending” would encourage borrowers to challenge the legitimacy of their home loan if they fall into arrears or default on their mortgage.
“It would become far too easy for borrowers in default to challenge as ‘unsuitable’ the loans they have voluntarily requested, accepted and benefitted from,” Suncorp submitted.
Suncorp added that increasing the possibility of challenges to the suitability of a home loan would, in turn, “diminish the incentive for borrowers to ensure that they repay their loans on time”.
The bank also contended that, over time, increased rates of arrears and default would affect the credit rating of banks and their ability to access funding, which it said would increase the burden on “non-defaulting borrowers”.
“When defaulting borrowers’ loans are written off or written down, it may be non-defaulting borrowers who subsidise those losses (through higher rates of interest) and deposit holders who bear the ultimate risk,” Suncorp said.
Further, the bank claimed that a rise in arrears would prompt the introduction of tighter lending standards which would have “broader impacts on the Australian economy”.
“Given the relatively low rate of default in the Australian mortgage market at present, there is no persuasive case for the making of such reforms,” Suncorp said.
Suncorp concluded: “The [royal commission] should not recommend any change to responsible lending laws (or to the relevant provisions of the code) without carefully considering the ramifications for the cost and the availability of credit.”
[Related: Major banks back HEM despite RC concerns]