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Responsible lending – too important to lose

Why you should care about the proposed changes to responsible lending laws.

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Last updated: 08 October 2020

One of the most poignant stories to come out of the banking Royal Commission was that of Robert Regan, a pensioner with an acquired brain injury who fell victim to an online romance scam. To pay the scammer, Robert applied for a $50,000 loan from ANZ via a broker.

robert regan jesse marshall consumer action

Robert Regan (left) with Consumer Action solicitor Jesse Marshall. (Image: Consumer Action Law Centre.)

Rather than thoroughly assess Robert's financial situation, the broker fudged the paperwork, leaving Robert with a loan that he couldn't afford to repay. 

What's more, the 30-year loan term meant he'd be paying off the loan well past his 100th birthday. He had to rely on charities for food and groceries. Despite not having enough money to live on, ANZ refused to provide hardship assistance – so his only option was to consider selling his home.

Robert should never have been given this loan, and if the broker had followed the rules regarding responsible lending, he never would have been put in this position. 

Recent history of responsible lending

It was irresponsible lending behaviour like this that led to the global financial crisis (GFC), and to the many scandals that were revealed in the banking Royal Commission. This revealed again and again that the banks can only be trusted to look out for themselves, not for consumers. 

We need responsible lending laws to hold the banks accountable, so they don't keep giving loans to people who can't afford them

In 2009, the federal government implemented responsible lending laws in response to the GFC and many years of legal centres showing the harm of bad lending practices. These laws require banks to ensure that people will not end up in significant hardship from a loan.

And yet, the government recently announced that it plans to do away with these laws – the very laws intended to stop irresponsible lending practices, such as those that cost Robert Regan so dearly, and have caused heartache and struggle for thousands of Australians. 

Banks and the business of debt

The banks' business is debt: more debt means more profits for the banks. They only want to sell more loans – the human consequences are often just an afterthought. 

We need responsible lending laws to hold the banks accountable, so they don't keep giving loans to people who can't afford them. 

As the Royal Commission showed, even with these laws in place, the banks still can't be trusted to do the right thing. If these laws were rolled back, there's no doubt we'd see even higher levels of debt than we already have – with more families losing their homes and people driven to extreme financial hardship. 

Our financial counsellors speak every day to people who are overwhelmed by their debt. Some of them are suicidal

Gerard Brody, CEO, Consumer Action Legal Centre

"At Consumer Action, our financial counsellors speak every day to people who are overwhelmed by their debt," says Gerard Brody, CEO of the Consumer Action Legal Centre.

"Some of them are suicidal. Some of them are considering bankruptcy. Others are on the verge of homelessness. And so we are concerned that these rollbacks will contribute to exacerbating these sort of harms." 

Why consumer groups are joining forces

CHOICE has come together with the Consumer Action Law Centre, Financial Counselling Australia and the Financial Rights Legal Centre to fight the government's proposal to roll back responsible lending laws. We've united because we know just how damaging it will be for both the economy and individuals if responsible lending laws are axed. 

This is an issue that affects everyone. At some stage in our lives, just about all of us will need to apply for a loan – be it a credit card, a home loan, a car loan or a personal loan. So any one of us could be impacted by unfair lending practices and end up homeless, unable to afford rent or the basic necessities. 

The senate will soon be considering this proposal. More than 5300 CHOICE supporters have already emailed their state senators calling on them to defend responsible lending protections.

Add your voice to oppose this harmful legislation and help keep Australia's banks responsible for the debt they sell and profit from.

We care about accuracy. See something that's not quite right in this article? Let us know or read more about fact checking at CHOICE.