Consumer groups slam axing of safe lending laws

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November 24 2020
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One hundred and twenty-five organisations have banded together to oppose the federal government’s proposed relaxation of responsible lending laws, arguing it will hurt consumers and the broader economy.

Consumer groups slam axing of safe lending laws

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 information provided by the borrower unless they suspect the information cannot be relied upon.

In order for the new lending standards to come into effect, the Morrison government must pass the legislation through the Senate.

In a national open letter launched today, 125 organisations and 97 prominent Australians are urging senators to block the proposed weakening of safe lending laws which protect consumers from aggressive lending by financial institutions.

Supporters of the open letter include consumer group Choice, the ACTU, ACOSS, Anglicare, and a range of religious, community, legal and family violence organisations from across Australia.

The collective argues that the reforms would burden individuals with debt they cannot repay, which will hurt consumer spending and ultimately slow down the economic recovery.

The letter pointed out that Mr Frydenberg’s reforms would contradict the first recommendation of the banking royal commission, in which commissioner Kenneth Hayne called for safe lending laws to be enforced, not dismantled.

“We write to you as community organisations, financial counsellors and thousands of people concerned about the government’s disastrous proposal. This policy will hurt people and hinder our economic recovery. These changes will take away people’s rights and give more power to the banks,” the letter stated.

“If this law is passed, people will be left to pick up the pieces for years to come while banks and other lenders are given a blank cheque to profit from aggressive lending.”

Regulators are hurting the recovery

While consumer groups are arguing for greater protections, Treasurer Josh Frydenberg is advocating looser restrictions, stating regulators are acting as a speed bump to the recovery.

Mr Frydenberg has said that regulators now have the tools to deliver on their mandate and shouldn’t ask the government for more lest they disrupt the recovery, warning that regulation had become “overly prescriptive”.

“Regulators do not carry out their mandates in a vacuum. They must pursue their mandates in a manner that is consistent with the will of the Parliament,” Mr Frydenberg told media.

Mr Frydenberg said the creation of the Financial Regulator Accountability Authority – which was recommended by commissioner Kenneth Hayne – would “hold (regulators) to account” and that they needed to remember who they worked for.

“It is the Parliament that decides who and what should be regulated. It’s the role of the regulators to deliver on that intent – not to supplement, circumvent or frustrate it,” Mr Frydenberg said.

“In the context of the COVID recovery, it’s critical that our regulators are conscious of the environment they are operating in and that they have the flexibility to respond in a way that simultaneously fulfils their mandate, enhances consumer outcomes, and supports, rather than hinders, the recovery.”

Mr Frydenberg recently announced the government’s intent to repeal responsible lending laws following ASIC’s disastrous “wagyu and shiraz” case, but said that the move wasn’t intended to give banks more breathing room.

“We want to cut red tape, but this is not about trying to help the banks. The banks are not my constituency. This is about helping consumers,” Mr Frydenberg said.

“I am seeking, from regulators, that they are not making policy or overreaching. I want to see them enforce the law – that would be better time spent than sending psychologists into the board room, frankly.”

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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