A survey of Australia’s financial counsellors shows an overwhelming majority believe responsible lending laws should remain to prevent devastating consequences to people and the economy.
The “Save Safe Lending” survey was conducted by Financial Counselling Australia (FCA) after the Federal Government announced plans to amend the National Consumer Credit Protection Act 2009. A bill was introduced in December last year which, if passed, will remove responsible lending obligations for lenders, with the exception of small amount credit contracts (SACCs) and consumer leases.
“The very first recommendation of the report said the Act should not be amended to alter the obligation to assess unsuitability. So, Commissioner Hayne made it very clear our responsible lending laws should remain unchanged,” said Fiona Guthrie, CEO of Financial Counselling Australia.
Today marks two years since the final report of the banking royal commission was presented to the Governor-General.
“The Federal Government accepted this recommendation, but it now plans to axe the law, meaning vulnerable people will no longer be protected from getting into massive debt traps.
“Our survey shows most financial counsellors think this a terrible idea, with 97% saying they want the laws to stay and 94% believing the laws are an important consumer protection.”
Almost all (93%) of the counsellors surveyed say they use the laws to help their clients who have been affected by irresponsible lending practices and 92% agreed that they will see more clients with unaffordable debt if the laws are passed.
“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.
“We urge all federal politicians to bear this in mind as they consider which way to vote on this bill,” said Ms Guthrie.
Financial counsellors work in community organisations and provide free, independent and non- judgmental assistance to people in financial stress. They’re different to financial planners or advisors.
The bill has been referred to the Senate Economics Legislation Committee for inquiry with a report due by 12 March 2021. The Government has stated it wants the new measures in place by March.
Key findings from the survey
- The majority of financial counsellors want the laws to remain. 97% supported this option, less than 1% said they should be removed while 2% did not have a view.
- The majority of financial counsellors agreed that the responsible lending laws are an important consumer protection, with 87% strongly agreeing and 7% agreeing.
- Nearly 93% of financial counsellors stated they use the responsible lending laws to advocate for their clients.
- The majority of financial counsellors expect they will see more clients with unaffordable debt if the laws are removed. A total of 92% are expecting an increase.
- Many of the respondents also believe that removing the laws will have a negative impact on the economic recovery, with 71% stating it would hinder the recovery from the pandemic.
Qualitative comments on the impact
“The repeal of the responsible lending laws would have a severe and negative impact on our community. Client presentations of financial hardship due to unaffordable and unsustainable debt will rise. The impact of financial hardship is an immense burden, which has such a negative ripple effect on a client’s mental health, physical health and relationships with family and friends, as well as the greater community.”
“Increased family violence and financial abuse.”
“Many of the clients that I have seen over the years struggling with unaffordable debt have expressed despair and had identified with suicide ideation.”
“Clients would have no protection from the predatory behaviour of some lenders.”
Examples of irresponsible lending
“Giving a personal loan to my client while she sat there with her partner. She had two black eyes from her partner and she never said a word through the interview. The partner spoke for her and told her to sign. It was all in her name.”
“I assisted an elderly couple who received the Age Pension, who had credit card debt of around $150,000. This was all waived under responsible lending laws. The couple were suicidal when I first met them, but with our assistance and responsible lending laws, we were able to negotiate waivers that left our clients in a better financial situation.”
“An $18,000 car loan for an 18-year-old on Youth Allowance with no other income. His living expenses were greater than his income before the loan was granted.”
“A solar panel contract for $19,000, where the client had no capacity to pay. The matter was resolved using responsible lending laws.”
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 Bill removes civil and criminal penalties against credit licensees for irresponsible lending.
- Banks will be able to return to the bad old days of loading people up with excessive credit card debt. This is because the Bill removes the obligation for banks to assess whether a credit card limit is affordable based on whether it could be repaid within three years.
- The proposal unwinds Australia’s successful and much emulated twin peaks model of regulation, with the (APRA) focusing on prudential regulation and (ASIC) focusing on conduct. We will be left with APRA lending standards, which are designed primarily around system stability – not individual harm.
To download a copy of the survey report, click here.
To speak with Fiona Guthrie or a financial counsellor contact: Maura Angle, FCA Director of Community Engagement – 0418 334 121 or [email protected]