Need to know
- The government has announced it will remove credit protections for borrowers
- Consumer groups say the plan will open up new opportunities for banks to aggressively sell debt
Consumer groups CHOICE, Consumer Action Law Centre, Financial Counselling Australia and Financial Rights Legal Centre have responded to the government's announcement that it will remove credit protections for borrowers, saying right now what people need is more income, not more debt.
The responsible lending laws were brought in by the Rudd government under the National Consumer Credit Protection Act 2009 (National Credit Act), and put the onus on credit providers to ensure that a recommended product was 'not unsuitable' for the consumer.
But the Morrison government has announced its intention to wind back the law, linking the move to its economic recovery plans in the wake of the COVID-19 pandemic.
The government's proposed reforms will remove bank responsibility to customers, opening up new opportunities for banks to aggressively sell debt.
CHOICE CEO Alan Kirkland joins other consumer groups in slamming the Morrison government's proposed wind-back of responsible lending laws.
Too much debt, not enough income
Karen Cox, CEO of the Financial Rights Legal Centre and opening witness to the Banking Royal Commission, believes it's the wrong solution for the wrong problem.
"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."
She says that 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 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?"
We 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 itCHOICE CEO Alan Kirkland
CHOICE CEO Alan Kirkland says piling more debt onto people who can't afford it has never solved an economic crisis.
"We 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."
"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."
There is significant profit to be made in pushing borrowers to the edgeFiona Guthrie, CEO of Financial Counselling Australia
Fiona Guthrie, CEO of Financial Counselling Australia, says 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."
Levels of lending not an issue
Potential borrowers currently have no problems accessing credit, with lending still growing significantly. The ABS July 2020 data on loan commitments shows that the number of new housing loans issued was 11.8% higher than July 2019.
"The Commonwealth Bank recently said that the flow of credit is above pre-COVID levels and that lending is growing at a strong pace," says Gerard Brody, CEO of Consumer Action. "And none of the big banks opposed the responsible lending laws at the recent House of Economics committee hearings."
The proposal also flies in the face of the findings of the Banking Royal Commission, which did not recommend any changes to responsible lending laws. Commissioner Hayne concluded:
"I am not persuaded that the NCCP Act's framework for responsible lending to consumers needs change. The responsible lending issues identified during the Commission's hearings will be resolved by banks applying the law as it stands." (p.117 Final Report)
"Responsible lending laws ensure safe access to credit," says Brody. "Leaving people with more debt they can afford is no way out of an economic crisis. Pushing too much credit that people can't afford to repay creates hardship, stress, anxiety for individuals and families."