Financial counsellors from across the country are dismayed that the Federal Government is pushing ahead with its plan to axe safe lending laws.
This week the Government introduced a bill that amends the National Consumer Credit Protection Act 2009. If passed, it will remove responsible lending obligations for lenders, with the exception of small amount credit contracts (SACCs) and consumer leases.
“It’s so disappointing that the Federal Government wants to repeal laws that protect vulnerable people from getting into massive debt traps,” said Fiona Guthrie, CEO of Financial Counselling Australia.
“These changes will harm individuals and families and are the last thing Australia needs as we chart a path to economic recovery. More debt is just a recipe for disaster,” said Ms Guthrie.
The bill was tabled after only two weeks consultation. The government wants the new laws in place by March next year.
“The government wants to introduce these laws just as consumers are traditionally recovering from the expensive Christmas period, not to mention the extra costs of setting up children for school at the start of the year,” said Ms Guthrie.
The responsible lending obligations protect people from exploitative lending by banks and other lenders and were introduced after the Global Financial Crisis.
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.
Financial counsellors believe there are some 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 (AFCA). 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 mental health issues, will be at risk of significant harm because lenders may take advantage of that vulnerability.
- The proposal unwinds Australia’s successful and much emulated twin peaks model of regulation, with the Australian Prudential Regulation Authority (APRA) focusing on prudential regulation and Australian Securities and Investments Commission (ASIC) focusing on conduct. We will be left with APRA lending standards, which are designed primarily around system stability – not individual harm.
Financial counsellors work in community 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.