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Removing responsible lending laws ignores Hayne royal commission
Consumer legal groups have slammed the removal of responsible lending laws and that removing credit protections will cause harm to people and the economy.
Tony Zhang
CHOICE, Consumer Action Law Centre, Financial Counselling Australia and Financial Rights Legal Centre have slammed the government’s announcement that it will remove credit protections for borrowers saying right now what people need is more income, not more debt.
Karen Cox, CEO of Financial Rights Legal Centre and opening witness to the banking royal commission, said that “the problem people are having right now is too much debt and not enough income.”
“The Government’s solution is to take on more debt with fewer protections. Unsustainable debt hurts real people and is a short-sighted fix for a flailing economy,” Ms Cox said.
“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.
“Our service has helped thousands of Australians drowning in debt and we continue to see legacy debt that predates the Hayne Royal Commission.
“How can we have so quickly forgotten the hard lessons from the GFC and the Hayne Royal Commission?”
Ms Cox said that removing responsible lending obligations will “free banks up to aggressively push credit onto their customers.”
“As we learnt to our cost during the GFC, weaker lending standards mean people will be loaded up with as much debt as possible. There is significant profit to be made in pushing borrowers to the edge,” she said.
Previously, banks have complained about the responsible lending regime being too complicated, and the government says the current consumer protection framework has created an atmosphere of excessive risk aversion among lenders, which has restricted the flow of credit.
Previously, commissioner Kenneth Hayne did not recommend any tightening of the laws governing how banks should determine eligibility for loans. The laws were perfectly adequate but they simply needed to be enforced, he argued.
The changes will roll back standards legislated a decade ago which were intended to stop consumers signing up to unaffordable loans and unsuitable credit products.
“As Australia continues to recover from the COVID-19 pandemic, it is more important than ever that there are no unnecessary barriers to the flow of credit to households and small businesses,” said Mr Frydenberg.
“Maintaining the free flow of credit through the economy is critical to Australia’s economic recovery plan.”
Alan Kirkland, CEO of CHOICE, said that Australia got rid of the idea of “buyer beware” in 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.
“Products like credit cards are complex. That’s why banks make so much money out of them. Banks are in a much better position to assess a person’s ability to repay, so they need to shoulder some of the responsibility.”
