Consumer advocates and law academics have savaged a government-led inquiry’s support of responsible lending wind-backs, which they say would expose more everyday Australians to “crippling” debt and exploitation.
Although the proposed changes disregard the Hayne royal commission’s first recommendation, the Senate Economics Committee’s report (published Friday) found they are required to reduce the time it takes consumers to access credit, expediting the post-pandemic economic recovery.
In its findings, the Coalition-majority Committee said current regulatory frameworks were “overly prescriptive” and complex.
As a result, it backed changes that would shift liability from lenders to borrowers and entrust prudential regulator APRA and the Australian Financial Complaints Authority (AFCA) with consumer oversight.
Both Labor and Greens senators submitted dissenting reports, arguing current consumer protections would be eradicated and rates of predatory lending and financial abuse could rise under the changes.
If passed, it would be the most sweeping slackening of lending laws in a generation and reverse consumer protections ushered in by the Rudd Labor government in 2009.
Opponents warn the changes would prop up banks and inflate asset bubbles at the expense of vulnerable consumers.
UWA professor in private law and commercial regulation Elise Bant, who was part of a group of academics who opposed the reforms in November, said the government had yet to present evidence that supported its justification for the reforms.
I would love to see Scott Morrison sit down with Commissioner Hayne, look him in the eye and explain to him how this [report] is consistent with the Royal Commission’s findings,” Professor Bant told The New Daily.
“If you look at their claim of a lack of credit, for example, the royal commission, ASIC and Treasury have said there’s no impact at different points, so that statement should be subject to examination.
“In fact, all evidence suggests we’re about to hit another red-hot property market and if responsible lending obligations are removed, that opens the doors to the sort of catastrophic harm we saw during the GFC.”
Professor Bant also pointed out the government’s assertion that APRA and AFCA would continue to protect consumers “does not stack up”, as the former is responsible for matters of portfolio-wide financial stability and the latter would not have a law to enforce under the reforms.
Higher prices, less protection, say consumer advocates
Consumer Action Law Centre CEO Gerard Brody agreed, saying the findings “fly in the face” of testimony that showed how current lending laws were instrumental to bettering consumer outcomes.
“We’re extremely disappointed by the majority report … it’s clear [the reforms] will remove individual rights to challenge banks over their lending decisions and reduce accountability on lenders to lend responsibly,” Mr Brody told The New Daily.
According to the royal commission, consumers received over $350 million in compensation between 2010 and 2018 after banks and other lenders were found to have breached their obligations.
Financial Rights Legal Centre CEO Karen Cox said the reforms were an outmoded response to the government’s concerns over the flow of credit, with new home lending recently hit all-time highs.
“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,” Ms Cox said.
Financial Counselling Australia CEO Fiona Guthrie said the report ignored the plight of people harmed by “irresponsible lending” who have incurred family breakdowns, mental health issues and homelessness.
The amendments are slated to be debated in the Senate from Monday and The New Daily understands their passage is on a “knife’s edge” with Senate crossbenchers expected to decide their fate.
The changes, which have been cheered by the banking sector, came after the infamous ‘wagyu and shiraz’ home lending case that the corporate regulator ASIC lost on appeal.
Effectively, the reforms would put more onus on borrowers, as the need for banks to carry out ‘reasonable enquiries’ into the affordability and suitability of a loan would be eliminated.
AMP Capital chief economist Dr Shane Oliver said that although the changes may not present a near-term issue, returning to “lax” lending standards could encourage borrowers to take on debts they have no hope of servicing.
“The question is whether you really need to do this, given the risks involved in terms of potentially seeing an eventual excessive easing in lending standards, which regulators would then need to re-regulate,” Dr Oliver told The New Daily.
Further implications for domestic abuse
Labor Senator Jenny McAllister, a member of the economics committee, told The New Daily axing responsible lending could have even greater implications for rates of financial abuse.
“The existing arrangements provide important safeguards [that] can be very important in protecting women who might be being coerced by their partner into taking on debt that is of no benefit to them and causes harm,” Senator McAllister said.
According to Victoria’s Economic Abuse Reference Group (EARG), 85 per cent of domestic violence victim-survivors experienced financial abuse, which can saddle them with large debts and affect their credit scores.
EARG spokesperson Carolyn Bond told The New Daily there could be untold damage on victims by relaxing the laws.
She said it may give a green light to perpetrators to commit more severe cases of financial abuse, as they have fewer roadblocks to coerce victims to take out unsuitable car loans, business loans or mortgages.
And that’s because banks will be able to conduct “automatic” and “very quick” loan approvals under the reforms.
“We’re also very concerned about people not actually having legal rights if they have an unsuitable loan,” Ms Bond said.
“There are a lot of services really focussed on helping people who are experiencing family violence get out of financial strife, and they feel [the reforms] would remove a very important tool from the toolkit when they try to help victims who have tens of thousands of dollars in debt.”
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