In an effort to increase the flow of credit as part of the recovery from the first recession in almost three decades, the government wants to reduce responsible lending obligations that require Australian credit providers to make inquiries about their customers financial situation, allowing for more suitable lending products.
Under the proposed changes, due diligence responsibility will go from the lender to the borrower, allowing the credit provider to rely on the information provided by the borrower, unless they suspect the information may be dishonest.
Consumer advocate Choice believes that supporters of the legislation aim to dismantle safe lending laws passed in 2009, in a move perceived as a gift to the financial services industry at the expense of its customers.
Choice points to figures released during the banking royal commission, which showed that between 2010 and 2018 alone, over 590,000 people received compensation totalling over $350 million for receiving credit products not designed with their interest in mind.
Consumer advocates have also deemed the banks hypocritical for changing their public statements about the role of safe lending laws. According to Choice, while the banks previously told parliamentary committees that the current laws are no impediment to the flow of credit, they are now asking Parliament to repeal these exact laws.
“The sheer numbers of people who have benefited from these safe lending laws in the past demonstrates the scale of problems for consumers if the banks get their way. People who are struggling will bear the cost of poor lending practices,” Choice CEO Alan Kirkland said.
“When lenders don’t do basic checks, borrowers and their families ultimately bear the cost. If anything, safe lending laws need to be strengthened. The stories we’ve heard from Australians show us there are too many falling through the cracks.”
And according to Mr Kirkland, the timing couldn’t be worse with the current economic climate likely to see a rise in debt.
“Record-low interest rates and government incentives are creating booming demand, driving up prices. Removing protections from unsafe lending will put many first home owners at risk,” Mr Kirkland concluded.
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