- Safe lending laws were introduced after the 2008-09 GFC
- The government wants to axe certain "responsible lending" clauses
- 34,000 people have signed an open letter not to relax safe lending laws
Mainly overlooked in the news around other goings-on in politics, the National Consumer Credit Protection (Supporting Economic Recovery) Amendment Bill is due for debate and vote in federal parliament today.
The new law seeks to amend the 2009 Act around responsible lending, which came out of the 2008/09 global financial crisis (GFC). The weight of opinion at the time was that the GFC was caused by irresponsible lending – especially in the ‘sub prime’ market – by financial institutions.
Basically, too many people were sold unaffordable loans they had little chance of repaying. When many of these loans became bad, this weakened the financial system, caused ‘runs on banks’ and a potential collapse of the entire global financial system. Various high profile collapses, government bail-outs and major recessions followed.
The repeal of the safe lending laws rests in the hands of the Senate crossbench.
Why change it?
The government line is that the 2009 bill is now overly prescriptive and will hamper Australia’s economic recovery from the pandemic, reducing people’s ability to take loans and help grow the economy.
They argue that APRA and other bodies already have the power to ensure that lending is done responsibly.
Except for risky loans, under the new law, the lending institution will be able to rely on information provided to them by the borrowers. The onus would be more on the borrower to provide information, rather than the lender.
Why the controversy?
Relaxing safe lending laws has brought on strong opposition from some quarters. 34,000 people, representing more than 126 organisations, have signed an open letter opposing the axing of the law.
“Loosening restrictions on loans and credit cards has risks, the letter argues, making people worse off.
“The banking royal commission heard shocking stories of banks giving aged pensioners 30-year mortgages, relying on fraudulent loan documents provided by car dealers, and paying thousands in kickbacks to loan ‘introducers’. We’ll see even more of this if banks and other lenders are not legally required to take care when lending.”
Open Letter to Parliament
With an accelerating housing market, now is not the time to remove safe lending laws, which could also push homeownership out of reach for many more Australians, they argue.
“We already see high levels of mortgage stress in states like Queensland, South Australia and Tasmania,” said Alan Kirkland, CEO of CHOICE.
“Giving more power to the banks in these circumstances will be bad for people who are already struggling to repay their mortgage and bad for people trying to get into the housing market.
“We hope that the rest of the Senate will see beyond the political spin and focus on the evidence: that we need safe lending laws now more than ever.”
The Consumer Action Law Centre agrees.
“This Bill will abolish a borrower’s right to legally challenge a lending decision, and will remove the role of ASIC in overseeing most bank lending. This directly contradicts the Banking Royal Commission which said that the existing law should not only remain but be better enforced.
“The Government’s plans will dismantle our effective and sound financial services regulatory framework. The reality is that the prudential regulator, APRA, does not provide individual consumer protection. It focuses on whether loans cause a credit risk to the bank, not on whether loans are affordable to individual borrowers,”
Gerard Brody, CEO of Consumer Action Law Centre
Fiona Guthrie, the long term CEO of Financial Counselling Australia, is especially concerned about the impact removing restrictions could have on vulnerable people.
Her organisation represents 950 financial counsellors working in communities and across the country with lived experience working with Australians in financial hardship.
“The effect of irresponsible lending on everyday people is enormous; it sends too many people into debt spirals which often leads to financial stress, family breakdown, mental health issues and even homelessness.
“We’re pleading with Senators, especially the crossbenchers, to block this bill. Please, don’t make it harder for financial counsellors to help the most vulnerable people,” she said.