Financial counsellors from across the country are warning of a looming debt disaster if the Federal Government proceeds with plans to axe safe lending laws.
Financial Counselling Australia and the state and territory financial counselling associations have made a joint submission to The Treasury about proposed changes to the National Consumer Credit Protection Act 2009.
The responsible lending obligations protect people from exploitative lending by banks and other lenders and were introduced after the Global Financial Crisis. The Federal Government will soon introduce a bill into Parliament which will see them wound back from March next year.
The responsible lending obligations require lenders and brokers to:
- make reasonable inquiries about the consumer’s financial situation, and their requirements and objectives;
- take reasonable steps to verify the consumer’s financial situation; and
- make an assessment about whether the credit contract is ‘not unsuitable’ for the consumer.
The joint submission points out the fundamental flaws with the proposed changes, including:
- The removal of individual rights. It will be much harder for people given excessive credit to obtain redress through the independent dispute body, the Australian Financial Complaints Authority. There will be no rights for individuals to take breaches of responsible lending laws to court
- People who are vulnerable, such as those who are affected by family violence, who have low financial literacy or have mental health issues, will be at risk of significant harm because lenders may take advantage of that vulnerability
- The whole proposal unwinds Australia’s successful and much emulated twin peaks model of regulation, with APRA focusing on prudential regulation and ASIC focusing on conduct. Instead of responsible lending obligations, we will be left with APRA lending standards which are designed primarily around system stability, not whether individuals are harmed.
Financial counsellors work in community-based organisations and provide free, independent and non-judgmental assistance to people in financial stress. They are different to financial planners or advisors.
They work with people who are struggling with debt on a daily basis and witness the devastating impact of irresponsible lending on individuals and families.
If these laws are removed, many people will forgo other essentials like groceries and medicine. Unaffordable debt is often a pathway to poverty.
Australia already has a massive debt problem. We have the second highest debt to income ratio in the world and financial counsellors fear there is a looming debt disaster if these laws are axed.
Finally, let’s not forget the Banking Royal Commission. The very first recommendation of the Commission (Recommendation 1.1) accepted by the Government was:
The NCCP Act should not be amended to alter the obligation to assess unsuitability.
That is to say, our responsible lending laws should remain unchanged.
Quotes from National and State bodies follow:
CEO of Financial Counselling Australia, Fiona Guthrie.
“Financial counsellors are dismayed that the Government is introducing this legislation. We see at first hand the harm caused when people are given credit they struggle to repay. This is why financial counsellors have been writing to their local politicians and seeking meetings with them, so we can provide them with real examples.”
“If these changes go ahead it will be a recipe for economic disaster. Loading people up with more debt is not the way to foster the economic recovery.”
Jon O’Mally, Executive Officer of Financial Counsellors’ Association of Queensland.
“The impact of this will be widespread and long term. Unaffordable debt can have serious implications on a person’s mental health and family relationships and make it difficult to pay for essentials like food, education and healthcare.”
“This decision by the Government will not only take away financial consumer protection, it takes away our social and well-being protections as well.”
Phone: 0429 061 269
Wendy Shirley, Executive Officer of South Australian Financial Counsellors’ Association
“We’re urging all parliamentarians to think about what this will mean for people when they are struggling to pay back debts they can’t afford. Think about their health, think about their mental health, think about their futures.”
Phone: 0427 823 656
Sandy Ross, Executive Officer of Financial Counselling Victoria
“This will cause more people to be lumbered with unaffordable debts to meet the drive for profit by banks and other lenders. People stuck with an inappropriate loan will lose the right to take their case to court and have fewer remedies in free dispute resolution through the Australian Financial Complaints Authority.”
Phone: 0417 557 420
Melanie Every, Executive Officer of the Financial Counsellors’ Association of Western Australia.
“Removing these laws will increase the risk that red flags for domestic violence or economic abuse will be missed. There will be fewer requirements for lenders and brokers to inquire into and verify a person’s financial situation, objectives and requirements.”
Phone: 0406 740 197
Jo Parker, Executive Officer of the Financial Counsellors’ Association of NSW.
“Financial counsellors don’t understand why the Federal Government wants to change these laws. It will lead to more debt and more hardship. Financial counsellors see first-hand that when people struggle to repay unaffordable debt, they forgo essential expenses like food, medicine, education or heating/cooling.”
Phone: 0466 351 400
Fiona Moore, Chair of Financial Counselling Tasmania.
“This proposal goes against the very first recommendation of the Banking Royal Commission, which is that the obligation to assess unsuitability should remain.”
“People need more income, not more debt. When people struggle to repay unaffordable debt, they forgo essential expenses like food, medicine and education. More people will end up living in poverty.”
Lyndall Millburn, President of Financial Counsellors ACT
“It is very disappointing that the Government plans to repeal the responsible lending laws. If the protections are removed, they will be making already vulnerable members of our society even more vulnerable.”
“More financial hardship reverberates through people’s whole lives and onto the whole of society. The protections put in place by the responsible lending laws are widely supported, most notably by the Banking Royal Commission. There does not seem to be any advantage to anyone if the laws are repealed. It does not make sense to expect a debt led recovery from this recession.”
Phone: 02 6257 1788