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CHOICE, the Consumer Action Law Centre, Financial Counselling Australia and the Financial Rights Legal Centre have slammed the federal government’s proposal to overhaul credit practices by removing responsible lending obligations (with the exception of small amount credit contracts and consumer leases) from the National Consumer Credit Protection Act 2009 (NCCP).
The consumer groups claimed the proposals, which involve a shift from a “lender beware” model to a “borrower responsibility” model, would open up new opportunities for banks to “aggressively sell debt”.
Karen Cox, CEO of Financial Rights Legal Centre, said the changes would amplify risks by encouraging the take-up of unserviceable debt.
“The government’s solution is to take on more debt with fewer protections. Unsustainable debt hurts real people and is a shortsighted fix for a flailing economy,” she said.
“Watering down credit protections will leave individuals and families at severe risk of being pushed into credit arrangements that will hurt in the long term.”
“Our service has helped thousands of Australians drowning in debt, and we continue to see legacy debt that predates the Hayne royal commission. How can we have so quickly forgotten the hard lessons from the GFC and the Hayne royal commission?”
CEO of Financial Counselling Australia Fiona Guthrie echoed Ms Cox’s sentiment, warning that the proposals could reinstate credit practices responsible for the global financial crisis.
“As we learnt to our cost during the GFC, weaker lending standards mean people will be loaded up with as much debt as possible. There is significant profit to be made in pushing borrowers to the edge,” Ms Guthrie said.
“Removing responsible lending obligations will free banks up to aggressively push credit onto their customers.”
Alan Kirkland, CEO of CHOICE claimed that the shifting of the burden of responsibility from lenders to borrowers during a recession “has disaster written all over it”.
“Piling more debt onto people who can’t afford it has never solved an economic crisis,” he said.
Mr Kirkland added that lenders should “shoulder some of the responsibility”, given that the emergence of new technologies and data sharing initiatives have enhanced serviceability assessment practices.
CEO of the Consumer Action Law Centre Gerard Brody questioned the need for reforms that would further boost access to credit, given that some lenders have recently reported strong settlement growth.
“The Commonwealth Bank recently said that the flow of credit is above pre-COVID levels and that lending is growing at a strong pace, [and] none of the big banks opposed the responsible lending laws at the recent House economics committee hearings,” he said.
“Leaving people with more debt than they can afford is no way out of an economic crisis. Pushing too much credit that people can’t afford to repay creates hardship, stress, anxiety for individuals and families.”
However, in announcing the proposals, the government stressed that lenders would still be subject to regulation from the Australian Prudential Regulation Authority (APRA), which will continue to issue guidance regarding sound credit assessment and approval criteria.
Key elements of APRA’s guidance would also be applied to non-banks, currently bound by NCCP obligations enforced by ASIC.
Banks welcome reforms
Conversely, the Australian Banking Association (ABA) has welcomed the government’s proposals, which CEO Anna Bligh said would help “remove duplication and overlap between regulators”.
“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
However, the ABA CEO stressed that the proposals would need to “strike the right balance” between maintaining strong consumer protections and enhancing access to credit.
“Banks look forward to working with the government to ensure the legislation works for both customers and the broader economy,” she said.
The Customer Owned Banking Association (COBA) also welcomed the announcement, with CEO Michael Lawrence backing the objective of simplifying “unnecessarily complex regulation”.
“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,” he said.
“Our sector’s sound lending practices are also subject to strong prudential oversight by APRA.
“The government is right to take decisive action to promote lending at a time of great uncertainty and the biggest peacetime economic contraction since the 1930s.”
Mr Lawrence said the proposed changes would also help reduce “unnecessary delays and frustrating paperwork”.
ANZ CEO Shayne Elliott, who recently lamented complexities in the lending process, also welcomed the government’s proposals.
“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,” he said.
“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.”
The government will now commence public consultation with stakeholders before finalising any legislation required to implement the reforms.
If passed, the proposals would take effect from 1 March 2021.