'Disaster': Consumer groups slam proposed responsible lending repeal
Australia's leading consumer rights groups have slammed the government's proposal to remove responsible lending laws, calling the plan disastrous as people have too much debt and not enough income in the COVID-19 crisis. Banking shares skyrocketed.
The new rules would strip the Australian Securities and Investments Commission off the oversight of responsible lending for the banks, leaving only the prudential regulator to ensure whether a bank's lending practices puts its stability at risk. Under the rules proposed by Treasurer Josh Frydenberg, responsible lending will be replaced with the concept of responsible borrowing.
The new rules are expected to face stiff scrutiny in the Senate, with the Greens vowing to fight the changes.
Bank share prices soared on the prospect of the looser rules, with Commonwealth Bank up 2.4 per cent, Westpac up 7 per cent, National Australia Bank up 5.6 per cent and ANZ up 4.7 per cent shortly after midday on Friday. The big four had added a combined $13.7 billion to the market cap of the S&P/ASX 200 by 12.30pm.
Carolyn Flanagan, a blind pensioner, appeared at the banking royal commission after she was left homeless because of a Westpac loan. Credit:Elke Meitzel
In a strongly worded statement, the heads of Choice, the Consumer Action Law Centre, Financial Counselling Australia and the Financial Rights Legal Centre hit out at the proposals which would see lenders' responsibility replaced with the borrowers' responsibility.
The four consumer groups were key advisers to the Hayne banking royal commission, and provided a large number of the case studies examined during the year-long inquiry into misconduct in banking and financial services.
The Hayne commission did not recommend any changes to responsible lending laws in its final report, finding the provisions in the credit laws and the banking code of conduct requiring banks to lend responsibly were enough. Mr Hayne declined to comment on the proposed changes when contacted by The Age and The Sydney Morning Herald on Friday.
But Karen Cox, the chief executive of the Financial Rights Legal Centre and an opening witness to the banking royal commission, lashed out the proposals.
"The problem people are having right now is too much debt and not enough income," she said. "The
government’s solution is to [have them] take on more debt with fewer protections. Unsustainable debt hurts
real people and is a short-sighted fix for a flailing economy."
"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," Ms Cox warned.
"How can we have so quickly forgotten the hard lessons from the GFC and the Hayne royal commission?"
To make [buyer beware] the principle that guides lending in the middle of a recession has disaster written all over it. Piling more debt onto people who can’t afford it has never solved an economic crisis.
Choice CEO Alan Kirkland
Choice chief executive Alan Kirkland said the idea of "buyer beware" had been removed from consumer law decades ago.
"To make it the principle that guides lending in the middle of a recession has disaster written all over it," he said.
"Piling more debt onto people who can’t afford it has never solved an economic crisis. Banks are in a much better position to assess a person’s ability to repay, so they need to shoulder some of the responsibility."
Gerard Brody, CEO of the Consumer Action Law Centre, said the Commonwealth Bank recently said the flow of credit was above pre-COVID levels. Lending was growing at a strong pace, "and none of the big banks opposed the responsible lending laws at the recent House of Economics committee hearings."
Greens Senator Nick McKim said the government would face a fight in the Senate to get the banking changes through.
"The day after Westpac received the largest corporate penalty in Australian history, the government is changing the rules to benefit the banks," he said.
"Looser lending standards will result in higher profits, higher dividends, and more money flowing into the most overpriced housing [market] in the world. This is not the pathway to recovery."
The Banking Code of Conduct, an enforceable industry code, also includes a responsible lending provision.
The Australian Bankers Association conducts three-yearly reviews of the code.
"The ABA will run an independent review of the code in 2021 to ensure it reflects the credit law reforms, remains current and continues to deliver real benefits to customers," a spokesman for the ABA said.
The proposed changes come after a key court case last year against Westpac found that banks could use a general benchmark rather than their personal circumstances when assessing a customers' expenses and not be in breach of their responsible lending requirements. However, the case did not look into responsibility of lenders outside of that narrow framework.
Sarah Danckert is a business reporter.