CHOICE has joined 125 other organisations to issue an open letter to parliamentarians. Together we are urging them to block the government's plan to dismantle safe lending laws.
The groups include Financial Rights Legal Centre, Consumer Credit Legal Service (WA), The Indigenous Consumer Assistance Network, the Australian Council of Trade Unions, the Australian Council of Social Service, Anglicare, Financial Counselling Australia and Consumer Action Law Centre.
The open letter warns that the proposal will "hurt people and hinder our economic recovery", and that these changes will effectively give banks "a blank cheque to profit from aggressive lending".
What are the proposed changes?
In September, the Morrison government announced plans to axe safe lending laws in an effort to boost the flow of credit and help kickstart the economy in the wake of COVID-19.
But CHOICE and other consumer groups say removing credit protections for borrowers will give banks new opportunities to aggressively sell debt – at a time when what people need is more income, not more debt.
We know that removing these laws will hurt peopleCHOICE CEO Alan Kirkland
"Safe lending laws are essential consumer protections that stop banks from acting in their own self-interest by selling unsuitable loans to consumers that could drive them to financial hardship," says CHOICE's banking policy adviser Patrick Veyret.
What are safe lending laws?
Following the global financial crisis, the government introduced safe lending laws under the National Consumer Credit Protection Act 2009 (National Credit Act).
These laws put the onus on banks and lenders to ensure that a recommended product is "not unsuitable" for the consumer and that they won't end up in "substantial hardship" from a loan they can't afford. The laws apply to all consumer credit products, including personal and car loans, mortgages and credit cards.
Changes will harm people and the economy
CHOICE joins 125 other organisations from the community sector, including financial counsellors, community legal centres, family violence organisations and faith-based organisations, in calling on parliamentarians to block the government's proposal.
"Vital organisations that assist millions of Australians each year have joined together to oppose these changes to lending laws," says CHOICE CEO Alan Kirkland.
"From community groups to domestic violence services and frontline legal assistance organisations, we know that removing these laws will hurt people."
The CEO of Financial Counselling Australia, Fiona Guthrie, agrees: "Even with the current responsible lending laws, financial counsellors still see too many vulnerable people with too much debt. We despair at the thought that this will get worse."
The open letter explains how repealing responsible lending laws will hurt Australians and hinder our economic recovery.
Axing these laws means banks and lenders can sell people loans or credit cards they can't afford.
People will be worse off
Currently, banks must ensure that people will not end up in significant hardship from a loan. Removing this protection means banks and lenders can target vulnerable people and sell them unsuitable loans or credit cards they can't afford.
"We got rid of the idea of 'buyer beware' in consumer law decades ago," says Kirkland. "To make it the principle that guides lending in the middle of a recession has disaster written all over it."
It will lead to a debt disaster
Due to the economic fallout of COVID-19, Australia is experiencing its first recession in nearly 30 years. But, as the letter argues, loading up people with debt they can't afford isn't going to solve the economic crisis.
"Banks and other lenders should not be given a green light by the government to burden people with even more debt and trap households in a cycle of persistent debt," the letter says.
The effects of debt stress
Stop the Debt Disaster, a coalition of consumer rights organisations, says debt stress can lead people to forgo essential items such as food, medicine and heating. "For many, unaffordable debt is a pathway to poverty," the coalition says.
Debt stress can also have long-lasting effects on people's relationships and mental health.
It contradicts the findings from the banking royal commission
When Commissioner Kenneth Hayne released his damning final report into the banking industry, the first of his 76 recommendations was the call for safe lending laws to be enforced, not dismantled.
It tilts the balance of power firmly towards the big banksPatrick Veyret, CHOICE's banking policy adviser
"The royal commission heard shocking stories of harmful lending by banks," says Veyret. "Commissioner Hayne rightly recommended that safe lending laws be rigorously enforced, not scrapped.
"It's astounding that the government is looking to backflip on this important recommendation. It tilts the balance of power firmly towards the big banks."
Concerns for those experiencing family violence
Consumer groups and domestic violence watchdogs have also highlighted the impact the government's proposal will have on people experiencing family violence.
Coerced debt is a common reason that victim-survivors find it difficult to leave a violent relationship and re-establish their lives. Currently, responsible lending can help identify red flags for financial abuse, such as a loan taken out in the victim-survivor's name that clearly only benefits the abuser.
"These critical protections serve a vital purpose, requiring the lender to make inquiries as to the loan's purpose, suitability and affordability," says Karen Cox, CEO of the Financial Rights Legal Centre.
"Australia's lending laws require lenders to undertake an assessment process that will often put them on notice when loans should not be approved.
"This is an important role in identifying and preventing the financial abuse of vulnerable women."
Removing these protections could have a devastating effect on victim-survivors, and make it harder for financial advocates to assist them with any debts they accrued while in an abusive relationship.