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On Friday (12 March), the Senate economics legislation committee released its final report for its inquiry into the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020.
The bill largely focuses on amending the credit laws so that they remove responsible lending obligations (RLOs) and extend the best interests duty to more credit assistance providers, among other changes.
The chief intention of the removal of the RLOs, as set out by the federal government, is to reduce the time it takes for individuals and small businesses to access credit and streamline lending regulation.
While several players in finance industry have stated that the repeal would align the regulatory approach with the “wagyu and shiraz” court case findings (regarding what lenders should be doing to adhere to the responsible lending laws) and improve the flow of credit and reduce the amount of red tape in the loan writing process – some concerns have been raised by members of the Labor Party and consumer groups regarding their view that repealing the current laws would reduce consumer protections.
Following the Senate committee backing the repeal of the laws, the consumer groups noted that “the repeal of safe lending laws now rests in the hands of the Senate crossbench”, as a vote on the repeal of the responsible lending laws is expected next week.
‘Sharks are already starting to circle’
Alan Kirkland, CEO of CHOICE, commented, “This report ignores the clear economic evidence: that the housing market is already overheating and removing safe lending laws will push home ownership out of reach for many more Australians.
“We already see high levels of mortgage stress in states like Queensland, South Australia and Tasmania.
“Giving more power to the banks in these circumstances will be bad for people who are already struggling to repay their mortgage and bad for people trying to get into the housing market,” he said.
“We hope that the rest of the Senate will see beyond the political spin and focus on the evidence: that we need safe lending laws now more than ever,” Mr Kirkland added.
Similarly, Gerard Brody, CEO of Consumer Action Law Centre, stated: “One bad loan won’t break the bank, but it can definitely break the borrower. That’s why we need to keep our safe lending laws – without them, the regulator focus will be on the stability of banks, not the protection of borrowers.”
Mr Brody said he believed the bill would “abolish a borrower’s right to legally challenge a lending decision” (a premise dismissed by the committee), and would remove the role of ASIC in overseeing most bank lending.
“This directly contradicts the banking royal commission, which said that the existing law should not only remain but be better enforced,” he posited.
“The government’s plans will dismantle our effective and sound financial services regulatory framework. The reality is that the prudential regulator, APRA, does not provide individual consumer protection. It focuses on whether loans cause a credit risk to the bank, not on whether loans are affordable to individual borrowers,” the CALC CEO said.
Karen Cox, CEO of Financial Rights Legal Centre, also criticised the move, stating: “Safe lending laws in this country were carefully crafted in response to real harm from unchecked lending.
“The [banking] royal commission reinforced the need for them only two years ago. This bill will take consumer protection backwards by a decade, let the banks off the hook again and expose ordinary Australians to more crippling debt.
“This plan to roll back responsible lending was concocted as a knee-jerk response to the pandemic-related recession. Now we are facing record lending levels and runaway property prices. It’s time to drop this crazy plan and avert a potential debt disaster.”
She concluded: “The provisions in the government’s bill, which claim to improve protection for vulnerable people against predatory lenders, have been watered down to be worse than the law as it stands. This part of the bill is not going to work and – as government subsidies end – the sharks are already starting to circle.”
Fiona Guthrie, CEO of Financial Counselling Australia, stated that she thought the majority of the report “is so disappointing”.
“The effect of irresponsible lending on everyday people is enormous; it sends too many people into debt spirals, which often leads to financial stress, family breakdown, mental health issues and even homelessness.
“We’re pleading with senators, especially the crossbenchers, to block this bill. Please, don’t make it harder for financial counsellors to help the most vulnerable people,” she urged.
[Related: Senate inquiry recommends RLO repeal]