'Disaster': Consumer groups slam lending laws repeal as bank stocks soar
Consumer rights groups have criticised a move by the Morrison government to remove tougher lending restrictions put in place after the banking royal commission, as Federal Labor and the Greens signalled they would oppose the repeal in Parliament.
Bank share prices surged on Friday after the announcement by Treasurer Josh Frydenberg that 'responsible lending' laws would be removed in an attempt to spur lending as the economy falls into a deep recession.
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 responsible lending replaced with the concept of responsible borrowing.
"Government’s proposed reforms will remove bank responsibility to customers, opening up new opportunities for banks to aggressively sell debt," the groups said.
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 satisfactory. Mr Hayne declined to comment on the proposed changes when contacted by The Age and The Sydney Morning Herald on Friday.
Shadow treasurer Jim Chalmers said Labor was deeply concerned the changes signalled an intention to dump the recommendations of the banking royal commission.
"We want to see households and businesses get sufficient access to finance but we don't want consumers caught in debt traps or the balance tipped back in favour of shonky lenders," Dr Chalmers said. "The government has form when it comes to going easy on the banks and loan sharks.
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."
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."
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.