Government’s push to remove consumer protections slammed

The Morrison government plans to remove lending legislation introduced after the GFC.

financial support concept

The Morrison government wants to weaken laws that were introduced to stop banks from engaging in predatory lending practices in the wake of the global financial crisis (GFC).

The proposed changes would see the removal of the responsible lending obligations from the National Consumer Credit Protection Act and allow lenders to rely on the information provided by borrowers.

Treasurer Josh Frydenberg, at a press conference to deliver the final budget outcome, said the moves were necessary as the obligations on banks for lending had become too onerous, and it was important that they were able to provide credit to help the Australian economy emerge from the pandemic stronger. But the moves have been slammed by consumer groups.

“It [the legislation] has become over prescriptive, and responsible lending has become restrictive lending,” Mr Frydenberg said.

“The governor of the Reserve Bank has pointed out that banks have become risk averse to the point they don’t want to make loans they fear may be going bad. We need our banks to be extending credit.”

The government provided the following case study as one of the reasons for making the necessary change.

Case study
Lisa is a retiree who recently lost her husband. They had a $3000 credit card account in both their names, but upon her husband’s death the bank closed the account as he was the main cardholder. Over the past two years, Lisa was the only person using and paying for the card, but was informed by the bank that she could not obtain a credit card in her own name as it could put her in ‘severe financial distress’.

Despite Lisa having $430,000 in her accounts, including her husband’s Refundable Accommodation Deposit being repaid to his estate, the bank notified Lisa that it was not able to consider her assets in her credit evaluation, but only the actual income she received each month.

Following the proposed changes, the lender would instead be able to consider Lisa’s financial circumstances, including that she has sufficient available assets to meet the total amount of outstanding credit and make their own assessment regarding whether to extend the product.

Mixed reaction
Banks stocks surged after the government’s announcement, with Westpac shares up 6.5 per cent, NAB up 6.3 per cent and ANZ up 5.3 per cent shortly after 11am on Friday.

Labor’s shadow treasurer, Jim Chalmers, told ABC News Breakfast that the opposition would consider the legislation when it was presented but was wary of the government giving too much leeway to the banks.

“The government does have a bit of form, unfortunately, at going easy on the banks and loan sharks at the expense of ordinary people,” Mr Chalmers said.

“We will have a look at it. If it makes sense, we’ll support it but if it tips the balance too far in one direction, we’ll have something to say.

“We want to make sure that any lending is responsible though. We want to make sure that people don’t get in over their heads. We want to make sure that people aren’t caught in debt traps.”

Karen Cox, chief executive of the Financial Rights Legal Centre, who was the opening witness at the banking royal commission, said the changes did little to address the real issues coming out of the pandemic and showed little forethought for the potential damage that could be caused.

“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?”

CHOICE chief executive Alan Kirkland said the potential for damage from removing the lending protections was enormous.

“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,” Mr Kirkland 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.”

Financial Counselling Australia chief executive Fiona Guthrie said the move ignored the lessons that should have been learned from 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,” Ms Guthrie said.

“Removing responsible lending obligations will free banks up to aggressively push credit onto their customers.”

Gerard Brody, chief executive of the Consumer Action Law Centre, questioned whether the changes were even necessary given the current lending levels.

“Responsible lending laws ensure safe access to credit,” Mr Brody said.

“The Commonwealth Bank recently said that the flow of credit is above pre-COVID levels and that lending is growing at a strong pace. And none of the big banks opposed the responsible lending laws at the recent House of Economics committee hearings.”

“Leaving people with more debt than 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.”

Do you support the relaxing of lending laws to kickstart the economy? Will banks abuse their power again and put us at risk of another GFC? Have you had trouble securing credit when you needed it? Do you think this change will help you?

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    COMMENTS

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    Tanker
    25th Sep 2020
    4:49pm
    This is probably their start to removing "red tape" which really exists to protect people. Think of the cladding on building which are costing mega dollars to replace and that happened because of watering down the protection for the buyer through the removal of so called red tape.
    This move to help the banks, God help us, is along the same lines.
    popster
    25th Sep 2020
    6:00pm
    Do not agree. People have got to start taking responsibility for their own actions. Surely any person must know when they are in a position of not being able to afford a loan. Banks must be forced to do due diligence before lending. They are already doing that. Also banks can demand credit checks. People these days can download their credit rating and see exactly where they stand etc etc. Take it to the bank as proof where you sit. It can be quite easily done. It is not up to Govt to interfere in peoples lives. If we wanted that we could just go and live in Victoria.
    Youngagain
    25th Sep 2020
    9:27pm
    Agree, popster. We have got to stop stuffing up the whole nation under the guise of protecting the stupid from their own stupidity. If you tell the truth, the bank won't lend irresponsibly. If you lie and get in out of your depth, that's on you.
    On the Ball
    25th Sep 2020
    9:53pm
    popster:
    You said: " Banks must be forced to do due diligence before lending."
    Yes... That's what the experts are saying.
    Youngagain
    28th Sep 2020
    4:15pm
    Banks have always done due diligence before lending, On the Ball. They have always been required to, and they wanted to do it because they didn't want bad loans.
    Eddy
    25th Sep 2020
    4:55pm
    Cannot say I really understand the issue but I am wary of any relaxing of rules that allow financial institutions to push indebtedness onto vulnerable people. Too many people are seduced by the 'don't wait, have it now' message. But then I was bought up in the generation where if you could not afford it you waited till you could.
    Youngagain
    25th Sep 2020
    9:32pm
    Read the detail, Eddy. Nobody is suggesting relaxing rules to allow institutions to push people into indebtedness. In fact, the proposal tightens laws regulating payday and short term loan sharks and companies leasing furniture and appliances. When it comes to banks, they SHOULD be able to lend to anyone who presents evidence of capacity. At present, they can't. The restrictions are way too tough. Anyone outside the box (e.g. relying on superannuation income, but more than capable of servicing a loan) is locked out.

    The current rules ASSUME everyone lies and forces the banks to work on the assumption of dishonest claims by applicants. The reforms will allow the banks to assess applications on their merits - putting the obligation on applicants to tell the truth and present reasonable evidence of their financial status. If people choose to lie and present false documents, that's on them. They are not 'vulnerable'. They are stupid and irresponsible and deserve their pain.
    54-11
    25th Sep 2020
    5:27pm
    Quite right, Tanker. Removing red tape is government code or euphemism for removing consumer protections, checks and balances, and essential regulations. They are just doing the bankers' bidding, because putting customers' interests first is anathema to them.
    Youngagain
    25th Sep 2020
    9:37pm
    Quite WRONG. They are not removing consumer protections at all. They are simply removing stupid barriers to responsible lending where a borrower doesn't fit a standard criteria. They are allowing banks to assess applications on their merits. They still have to require applicants to evidence adequate security and capacity to repay. The proposal would, however, apply very strict new rules to payday lenders and other vultures.

    This proposal is about allowing people who need to borrow and CAN repay to service their needs.
    Rae
    26th Sep 2020
    6:02am
    I agree Youngagain and if the banks end up with bad loans so be it.

    I'm more concerned with companies trading while insolvent , it means paying deposits or prepaying for services, holidays and so on for anything is dangerous now.

    If people want to spend money they can't afford so be it.

    Most on here know how very bad recessions can hurt and the young are about to learn.
    Youngagain
    27th Sep 2020
    8:38am
    Wow. I hadn't thought about that one Rae. I've paid some quite large deposits recently to have renovation work done. It hadn't occurred to me that the company I paid might be insolvent or close to it and might collapse before the work is done. Happily there is only one that I think would present a risk, but I'll be very wary in future.

    I really don't get all the carry-on about the banks. I've always been interrogated and required to show evidence of adequate income and security, and any loans I applied for after about the mid-1980's, I had to go to a solicitor and have him explain the consequences of not repaying and tell me what to do if if my circumstances changed and I found myself in hardship. I felt that was a waste of money and time as anyone with half a brain knows you have to pay the loan back, but I question how anyone who didn't understand and couldn't repay could get a bank loan.
    Youngagain
    25th Sep 2020
    5:42pm
    This is a good reform. The government has pledged to clamp down on the loan sharks and companies leasing appliances etc. This is where people are more likely to get into trouble. The banking rules had become ridiculous. People with brilliant credit history and solid assets were unable to borrow. I know retirees who wanted to borrow temporarily to buy a property - just until their sold. Despite hundreds of thousands in super generating a healthy income, the bank would not lend because they said super was to live on, not to service a loan. Ridiculous! If it was enough to make the repayments and still eat, and the loan was short term until their house sold, what's the problem?

    A woman couldn't refinance a loan that was at 7% interest, even though it meant LOWER repayments, because the bank claimed she didn't have enough income to service the loan if the tenant stopped paying rent. Well, she would have to pay a higher amount if the loan wasn't refinanced, so where's the common sense? There is none.

    It's definitely time to fix the excessively onerous restrictions. Responsible people should not have to suffer in order that useless idiots who lie about their finances can be protected. It's not possible to protect everyone from their own stupidity, and we should not be disadvantaging the economy trying.
    Garyand
    25th Sep 2020
    6:58pm
    It's 'Back to the Future' and banks lending to people that really shouldn't be borrowing in many cases! The current 'restrictions were put in place to protect people and, also to protect financial insitutions from bad debt. That Banking Royal Commission seems from another era now? We are still recovering from the time my two year old daughter was offered a credit card and we had a bank offer us a ridiculously large loan.
    Youngagain
    25th Sep 2020
    9:34pm
    Wrong, Garyand. Clearly you didn't read the proposals. The legislation merely allows banks to assess applications on their merits instead of applying absurd rules that exclude anyone who doesn't fit in a standard box. Banks still have to require applicants to evidence capacity to repay and possession of adequate security. What is good about the proposal is that it tightens the laws governing unconscionable lenders.
    Poppa Bear
    25th Sep 2020
    7:08pm
    I remember many years ago talking to a bank manager, who was bemoaning the fact that, when he wouldn't lend people money he was the bad guy, because he wouldn't help them, and when he did lend them money he was the bad guy, for getting them into debt! He couldn't win!
    Farside
    25th Sep 2020
    7:25pm
    remove sensible lending protections, let loose the marketers and bankers while shifting responsibility to intemperate borrowers ... yep, how many ways can this end in tears
    Sundays
    25th Sep 2020
    8:24pm
    How quickly we forget pre GFC and the smooth talking mortgage brokers and bankers talking people into loans they couldn’t afford, and falsifying documents in many cases. Protections are there for a reason
    Youngagain
    25th Sep 2020
    9:26pm
    Read the detail. The government is actually cracking down on irresponsible lenders. The reforms are sensible. The existing laws go way too far and prevent people who are good risk, responsible and capable from borrowing.
    ph
    25th Sep 2020
    9:38pm
    It's commonly known that the measure of a society is how that society protects those that cannot protect themselves.
    Youngagain
    25th Sep 2020
    9:45pm
    Except we have crippled the economy looking after the stupid and the useless. And it's an impossible task. You cannot protect people from their own stupidity.

    It's time some sanity prevailed. Look after the vulnerable - yes. But the current laws are designed to assume EVERYONE is irresponsible, dishonest, stupid and incapable of repaying a loan. It is stopping responsible and capable people from doing business. And it actually hurts the vulnerable by pushing them into high interest loans from loan sharks because they can't access credit from banks. The government's proposal will protect the vulnerable by allowing them better access to loans from responsible lenders who offer credit on fair terms.
    Youngagain
    25th Sep 2020
    9:41pm
    It's a pity the author couldn't see past his political bias and actually read the proposal. He would have found that his comments are entirely unfounded and just plain wrong. The government is correcting a past mistake - tightening laws governing vulture lenders and sharks and loosening unreasonable restrictions on responsible lending institutions so people who need to borrow can borrow on fair terms instead of having to resort to loan sharks. The proposed laws do not remove consumer protections at all. They simply enable business to proceed as it should, without draconian restrictions that prevent responsible borrowers accessing the funds they need.
    Rae
    26th Sep 2020
    6:09am
    I'm pleased you pointed this out as I did read the proposal and you are right.

    In 2009 we had the opportunity to buy a wonderful property for huge discount. It took weeks to get the loan but we finally did and paid it off quite promptly in the few years after.

    Under the unreasonable restrictions that would not have been allowed even though we had considerable collateral and could easily service and eventually pay out the loan.
    Youngagain
    26th Sep 2020
    4:24pm
    Rae, a friend who owned a valuable property that he wanted to sell and had a healthy income from superannuation, plus private savings, was refused a loan to buy a cheaper property because 'superannuation is for living on, not for servicing a loan'. Ridiculous! He only wanted the loan for a short time until he sold his larger home, and in any case accommodation is a cost of living. If he didn't have a home, he'd have to pay rent out of his super. What's the difference? It was insane. He was forced into expensive bridging finance from a private lender. Now how does that sort of stupidity help the vulnerable?

    Another friend wanted a small loan to pay for house repairs. Same response from the bank. Can't use superannuation to repay a loan. It's for living on. So she used her credit card - at 17% interest! That's really helping the vulnerable, isn't it? NOT.

    In both cases, the bank staff wanted to advance the funds but said the new regulations introduced after the banking Royal Commission forbid them to.

    Same result when a younger person, married to a serving military member and forced to live away from her home, wanted to refinance her house (which was tenanted). Couldn't refinance at lower interest because 'the tenant might leave and your family income isn't sufficient to cover the repayments if that happens'. But they were servicing a loan at much HIGHER interest. They were trying to reduce their obligations. Ultimately, they had to stay with the higher interest loan. Again, bank staff said they wanted to advance the loan and agreed it was stupid that the rules forbid it.

    The restrictions DO NOT help the vulnerable. They hurt them. Denied finance from a bank, they are more likely to go to vulture private lenders where they really will get hurt. Frydenberg is proposing to clamp down on private lenders and give the banks more leeway to assess applications on their merit. The vulnerable will benefit. And so will the economy, because more responsible people will be able to access funds to do business.
    ph
    28th Sep 2020
    12:20pm
    Please read; https://www.abc.net.au/news/2020-09-28/rescinding-of-responsible-lending-legislation-hurts-borrowers/12708810?utm_source=abc_news&utm_medium=content_shared&utm_content=link&utm_campaign=abc_news


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