Banking royal commission: hands-off Hayne relying on Treasury submission

For all the discussion about banks reluctant to lend and the impact on the economy, Hayne didn’t have a lot to say.

For all the discussion about banks being reluctant to lend and the ­impact on the economy, Kenneth Hayne didn’t have a lot to say on the topic.

In his final report, Hayne said banks were screening loan customers more heavily, which could result in a “tightening of credit”. He said that was a result of banks meeting their legal obligations.

Hayne is relying on Treasury’s submission, which pointed to the housing market and economy being able to absorb stricter bank lending criteria. Banks will be ­relieved Hayne took a hands-off approach and that they escaped further rules or a clamp-down.

That is especially important given the slowing of the $1.7 trillion mortgage market, with house ­prices coming off the boil across most capital cities.

Hayne’s scrutiny of bank legal obligations has already prompted a lot of change. The final report said the big banks were already moving away from a formula or scoring system known as the household expenditure measure (HEM) to assess a borrower’s ability to repay a mortgage.

Hayne doesn’t like HEM as it focuses on only basic measures of spending, meaning the assessment on whether a loan can be repaid tends to be understated.

Hayne also steered away from delving into bank obligations on responsible lending, particularly as Westpac and the corporate regulator continue to spar in court over the bank’s obligations.

Hayne hasn’t backed away completely, and wants regulators and banks to keep an eye on whether the legislation is working.

“If the court processes were to reveal some deficiency in the law’s requirements to make reasonable inquiries about, and verify, the consumer’s financial situation, amending legislation to fill in that gap should be enacted as reasonably practicable,” he said. His comments were in reference to the Consumer Protection Act.

Last year, Federal Court judge Nye Perram rejected a settlement between the Australian Securities and Investments Commission and Westpac in part because they could not agree on the number of breaches. Westpac and ASIC agreed in September over the fine, after the bank conceded it wrongly assessed ability to repay mortgages by relying on a benchmark for customer expenses.

Hayne wants better enforcement of existing rules and for codes of conduct to be enforceable on lending responsibilities. Banks are already bound by obligations, but as the commission showed repeatedly, they’ve failed to adhere to them.

Hayne also left national consumer credit protection law untouched, which will anger con­sumer groups which wanted a new obligation for lenders on mort­gages and other credit products.