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Fight over responsible lending laws looms
Industry and consumer advocates are urging the federal government to stop the winding back of responsible lending laws, with the change that could possibly lead to a debt crisis.
Tony Zhang
A fight is looming over separate laws to ease lending rules and free up the flow of credit, as consumer advocates call on Labor, the Greens and the Senate crossbench to reject the changes.
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Treasurer Josh Frydenberg had said responsible lending laws led to “restrictive lending” and needed to change to get more money into the economy.
The Consumer Action Law Centre, which helped many commission witnesses through the gruelling process, said changing responsible lending laws could lead to trouble.
“The Treasurer’s proposals are a real slap in the face to anyone who gave evidence at the royal commission,” said the centre’s policy director Katherine Temple.
“The royal commission showed the banks can’t be trusted to do the right thing and these proposals are essentially giving them more power and less responsibilities.
“We tend to underestimate our expenses and overestimate our income. That’s just a behavioural bias that we all have.
“Banks can make use of the very rich data they have to assess whether people can afford to repay these loans.”
The first of commissioner Kenneth Hayne’s 76 recommendations was for the government to leave the National Consumer Credit Act alone.
Commissioner Hayne said it “should not be amended” when it comes to a lender’s obligation to assess if a customer is suitable for a loan, credit card or overdraft.
But consumer advocates said the draft legislation does precisely that, rolling back consumer protections and putting the onus on customers – instead of banks – to work out what is suitable and what they can pay back.
A majority of upper house members backed a Greens motion condemning the government for attempting to wind back the laws and water down consumer protections.
Mr Frydenberg defended the changes, noting debt collectors would soon need an Australian credit licence, and that responsible lending obligations would still apply to small amount credit contracts (SACCs) below $2,000 and consumer leases.
Furthermore regulation will increase with the best interests duty for mortgage brokers, increased financial sector civil and criminal penalties, enhanced protections for credit card customers, and establishing the Australian Financial Complaints Authority (AFCA).
“The Morrison Government is implementing the most significant reforms to Australia’s credit framework in a decade to increase the flow of credit to households and businesses, reduce red tape and strengthen protections for vulnerable consumers,” he said in a statement.
