The federal opposition has argued that removing responsible lending obligations could trigger another round of predatory lending amid the bill’s introduction to Parliament.
The 2020 bill on the national protection of consumer credit (support for economic recovery) was recently introduced in Parliament and read for the first and second time.
The bill deals with amending laws relating to consumer credit and consumer leases, and includes the proposal to abolish responsible credit laws and expand the best interest duty to more credit providers.
In response to the bill’s introduction and first reading, Federal Shadow Treasurer Dr. Jim Chalmers told Parliament that the bill was intended to “undermine” the Royal Banking Commission and consumer protection issues. responsible lending.
Dr Chalmers argued that the federal government is taking measures that were specifically advised against in the royal banking commission, in particular in recommendation 1.1, which stipulated that the 2009 national law on the protection of consumer credit should not be amended to modify the obligation to assess mismatch.
“I think that says a lot about whether the heart of government is really to do the right thing by real people when it comes to the banking system and the financial system in general,” he said. he declares.
However, Dr Chalmers added that: “We are prepared to support the gist of this bill, where it truly implements the recommendations of the Royal Banking Commission. But there are a couple of things that need to be cleaned up. We will try to do this through the usual parliamentary processes.
Shadow Deputy Financial Services Minister Matt Thistlethwaite also weighed in on the proposed changes and said Labor was “deeply concerned about this proposal”.
“It is a shame that the government intends to ignore recommendation number one of the Royal Commission, and that is to ensure that Australia meets its responsible lending obligations and its laws on banks and institutions financial so that predatory lending – the virus that is spreading around the world as the global financial crisis approaches – and the effect it has had on many families, workers, businesses and the international financial system, can be avoided in the future, ”said Thistlethwaite.
Shadow Deputy Treasury Minister Dr Andrew Leigh argued that the “banks themselves had not called” for the removal of responsible lending obligations, and noted that consumer groups expressed concerns about the proposal and its implications for consumer protection.
Speaking to Parliament, Dr Leigh asked: ‘Does Australia really need more irresponsible lending? Is this the real need of the Australian economy right now – a wave of irresponsible lending? Well, consumer groups don’t think so. The banks themselves have not asked for it.
Deputy Treasurer Michael Sukkar read the bill for the second time in Parliament after its introduction, reiterating the government’s reasoning that early access to credit is critical to the success of Australia’s economy, especially as it is recovering from the coronavirus pandemic.
He said the bill would amend the law so that existing responsible lending obligations only apply to low-value credit contracts and consumer leases, and added that the bill would replace the universal “prescriptive” approach to current laws and would provide lenders with the ability to assess each credit applicant on a case-by-case basis.
“However, this flexibility will not diminish the consumer protections in place and, for some products, improve those protections,” said Mr. Sukkar.
“The bill gives the minister the power to set new lending standards. The new regime will apply to non-bank lenders, as banks will continue to be regulated by the Australian Prudential Regulation Authority (APRA).
Mr Sukkar added that lenders who fail to comply with the credit assessment processes they have put in place would be in violation of APRA standards, which would allow borrowers to gain access to the Australian Financial Complaints Authority. (AFCA) for “free dispute resolution and restitution”.
Access to finance needs reform: HIA
The government’s proposal received backing from a construction industry association, which said financial strain was a key factor in the decline in the volume of housing construction by nearly 20% in 2018.
Housing Industry Association (HIA) chief economist Tim Reardon argued that access to finance requires reform and that banks should be made responsible for determining the ability of borrowers to pay off a mortgage instead of agencies government.
“Access to finance has tightened over the past two years, despite evidence of a problem,” Reardon said.
Mr Reardon’s comments followed the HIA’s participation in an industry roundtable led by My Sukkar, where the main agenda was to explore ways to improve access to finance to enable more first-time buyers to enter the market.
“The processing time for loan applications in 2018 has gone from two weeks to two months,” Reardon said.
“First-time homebuyers have been forced to delay their entry into the housing market due to the introduction of additional barriers to lending. This despite the evidence that residential mortgage loans are anything other than “unmistakably strong”.
“Since the global financial crisis, there has been a decade-long reform agenda in pursuit of an ‘unmistakably strong’ financial system.
“This ‘belt and suspenders’ approach to regulation has reduced risk in the financial system, but it has come at a cost to first-time buyers.”
Mr Reardon said regulations forced banks to remove flexibility from the mortgage market.
“The legislation will begin to restore a degree of flexibility in the loan market that will inject millions of dollars into the economy at a time when Australia needs it most,” he concluded.
[Related: RBA backs responsible lending reforms]
Malavika Santhebennur is the Mortgage Securities Editor at Momentum Media.
Prior to joining the team in 2019, Malavika held positions at Money Management and Benchmark Media. She has been writing about financial services for six years.