Treasurer Josh Frydenberg’s legislation seeking to repeal banks’ responsible lending obligations is expected to go to a Senate vote this week. “Now, more than ever,” says Treasury, “it is important that there are no unnecessary barriers to the flow of credit to households and business, especially small and medium sized businesses, as the economy recovers.”
The bill seeks to amend the National Consumer Credit Protection Act, a 2009 law passed in the aftermath of the Global Financial Crisis. The Rudd-era law, which at the time passed with the support of the Liberals and Nationals, places a legal obligation on lenders to ensure that a loan is “not unsuitable” for a borrower.
Keeping this rule in place was recommendation no. 1.1 of the Hayne royal commission into misconduct in the banking, superannuation and financial services industry. At the time the commission handed down its findings, the government responded, “The government agrees to this recommendation and the Commissioner’s findings that ‘not unsuitable’ remains the appropriate standard.”
Frydenberg is now seeking to replace the rule with a “borrower responsibility” regime. After the legislation was introduced in December and tabled before a Senate committee, the committee concluded – with Labor and Greens members in opposition – that the responsibility obligations were “potentially over-prescriptive.”
The Hayne Royal Commission also recommended that mortgage brokers be banned from taking commission from banks that they steer lenders to. Frydenberg initially accepted that proposal, but has declined to include the provision in the final legislation.
Commenting on the proposals in their totality, a submission from 11 academic experts in consumer law noted, “Our concerns include that the proposals will detract significantly from necessary protections offered by consumer credit laws; encourage instances of irresponsible lending [and] remove access to the Courts and the possibility of a clear remedy.”
Frydenberg has said he wants to “reduce the cost and time” for consumers and businesses to access credit.” Yet doing so at risk of another collapse in consumer loan repayments is a counterproductive endeavour.
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Feature image courtesy of @jeshoots via Unsplash.