Major financial overhaul slammed

Australia’s leading consumer advocacy organisations, charities, community groups, unions and financial counsellors penned an open letter to Australian senators on Tuesday calling for them to block the federal government’s proposed weakening of safe lending laws.

In late September, the government announced it was planning to scrap responsible lending laws, originally introduced to prevent predatory lending practices, that were exposed during the global financial crisis (GFC).

The changes in the law take away the obligation for banks to ensure that the consumer is capable of repaying a debt that they agree to and shift the onus back onto the consumer.

The open letter, signed by 122 organisations and 97 prominent Australians, calls on the senators to “block this harmful law”, which it claims will leave 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’,” the letter explained.

“We’ll see even more of this if banks and other lenders are not legally required to take care when lending.”

The banking royal commission made it clear that safe lending laws were important to stop banks from repeating previous mistakes.

Commissioner Kenneth Hayne’s very first recommendation from his final report was for the government to leave the National Consumer Credit Act alone.

The open letter is supported by new national polling that showed Australians supported responsible lending laws, with 79 per cent believing that banks should be required to check a customer’s ability to repay before being offered a mortgage.

Chief executive of the Consumer Action Law Centre Gerard Brody said the changes would mean that banks would face no repercussions for predatory lending practices.

“Under the government’s plans, borrowers would have existing rights to sue their lender for unsuitable lending removed,” Mr Brody said.

“Lenders would also have far fewer incentives to comply with good lending standards, because penalties for breaching laws are being removed and weakened. 

“Newly released November 2020 polling shows that 82 per cent of people believe there should be fair compensation for people when they are wronged by financial institutions. The government’s plan puts this at risk.”  

Pensioners were regularly a target of banks before the lending laws were introduced, according to chief executive of the Financial Rights Legal Centre Karen Cox.

“Before safe laws were introduced, lenders regularly sold unaffordable loans to people, including pensioners, people on Centrelink payments and casual workers, who they knew would never be able to repay the loans,” Ms Cox said.

“Responsible lending laws were designed to stop the reckless lending we witnessed throughout the global financial crisis and the royal commission.

“It’s beyond belief that less than two years after the royal commission made this its first recommendation that the government wants to go directly against it.”

Pensioner Robert Regan, who was the first non-expert to give evidence at the banking royal commission, was also appalled at the decision to weaken responsible lending laws.

“If Australia can’t have the support of the treasurer against misconduct in the banking, superannuation and financial services, then we, as a democratic nation, are in trouble,” he told the ABC earlier this month.

The changes are also opposed by the Finance Services Union who said that they were not in the public interest.

FSU national secretary Julia Angrisano said the union was concerned that proposed changes would lead to a return to the toxic work practices and oppressive work culture uncovered by the banking royal commission.

“We believe these changes will have a detrimental effect on the morale and health of front-line bank staff whose job it is to sell debt products,” Ms Angrisano said.

“We also reject the notion that there are significant barriers to obtaining credit, and this view has been confirmed by the chief executives of the CBA and ANZ banks.

“The FSU believes the impact of these proposed changes on workers will be catastrophic.  We will see a return to situations where workers are afraid to go to work, knowing they will be pressured all day to sell credit to people who cannot afford it.”

Will banks abuse their power again and put us at risk of another GFC if this legislation passes? Do you support the change? Why or why not?

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Related articles:
https://www.yourlifechoices.com.au/government/centrelink/granny-flat-interest-explained
https://www.yourlifechoices.com.au/finance/banking-and-investment/class-action-against-big-four-bank
https://www.yourlifechoices.com.au/finance/banking-and-investment/beware-the-promises-of-debt-vultures

Written by Ben

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