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Responsible lending overhaul to speed-up loans, says Westpac CEO Peter King

Westpac CEO Peter King praised the overhaul as a significant government initiative that would reduce red tape for consumers seeking a loan.

The federal government is overhauling consumer credit laws, removing responsible lending obligations from lenders.
The federal government is overhauling consumer credit laws, removing responsible lending obligations from lenders.

The big four banks have rocketed in early trade after the federal government announced the biggest shake-up to Australia’s credit laws in a decade, ditching responsible lending obligations in an attempt to boost the post-Covid economy.

In early afternoon trade, Westpac was trading more than 7 per cent higher at $17.53, ANZ had gained 5.42 per cent to $17.78, NAB had lifted 6.5 per cent to $18.30, while CBA had risen 3.54 per cent to $66.47.

Regional lenders also rose on the flagged changes, with Bendigo Bank up 4.43 per cent to $6.36 and Bank of Queensland rising 2.9 per cent to $6.22, while listed mortgage brokers Australian Finance Group and Mortgage Choice shared in the gains, jumping 8.9 per cent to $1.96 and 3.59 per cent to 86c.

The sharp share price gains came after federal Treasurer Josh Frydenberg announced responsible lending obligations brought in by the Rudd government during the global financial crisis would be abolished to unshackle lenders from excessive regulation.

Under new obligations, which have yet to be legislated, lenders will be able to take at face value the information provided by borrowers on which they will base their loan assessments. Borrowers will shoulder the responsibility of providing accurate information, unlike the current laws, which place the onus on lenders to verify the information contained in a borrower’s application.

The move away from the one-size-fits-all regulatory approach comes two years after the financial services royal commission heard of multiple instances of dodgy consumer lending practises by both lenders and brokers

It also comes weeks after the Australian Securities and Investments Commission was forced to back down in its landmark responsible lending case against Westpac Bank, after losing both the case and its first appeal in Federal Court.

The corporate regulator in July decided not to launch a final appeal in the so-called ‘wagyu and shiraz’ case, citing the current “challenging economic circumstances” as a reason for not pursuing the case further.

The case centred on how Westpac conducted the assessment of a borrower, including the use of a benchmark household expenditure measure and ratio of declared expenses compared to a consumer’s income.

ASIC had alleged that Westpac breached responsible lending laws by not taking into account borrowers’ real living expenses when assessing loan applications.

The major regulatory shift announced by the Morrison government drew a mixed response on Friday, with the banking sector praising the overhaul and consumer groups slamming it as shortsighted.

Westpac CEO Peter King praised the shake-up as a significant government initiative that would reduce red tape for consumers seeking a loan and speed up the loan approval process

“These enhancements would enable us to assess loan applications across specific lending products rather than a ‘one size fits all’ approach. We will be able to streamline our processes, making it an easier and simpler process for customers.

“It is in our interest to only lend to customers who are in a position to meet their financial obligations. The Government proposal strikes a good balance between reducing regulatory burden on credit providers while ensuring we have rigorous credit processes in place,” Mr King said.

The responsible lending changes would play an important role in ensuring access to credit for businesses wanting to invest and grow, he noted.

“SME businesses drive employment and this is very important for economic recovery.”

The nation’s biggest bank, CBA, welcomed the government’s move to reduce the regulatory burden on lenders.

“We welcome the government’s announcement today about reforming the way that lending arrangements are regulated. We will work through the detail of the proposals but as a principle we support any attempts to reduce regulatory burden while continuing to ensure that consumers are protected,” a CBA spokesman told The Australian.

The Australian Banking Association also welcomed the proposed consumer credit law overhaul, but CEO Anna Bligh cautioned that the changes needed to strike the right balance.

“It is important to ensure that these changes strike the right balance between maintaining strong consumer protections while providing credit into the economy at a critical time”, she said.

“Australian banks understand their role in supporting customers and rebuilding the economy. Ensuring the flow of credit to families and businesses, with the right customer protections, is paramount.”

But consumer groups slammed the changes as shortsighted and warned that weaker lending standards would see consumers load up with as much debt as possible.

“The problem people are having right now is too much debt and not enough income. The Government’s solution is to take on more debt with fewer protections. Unsustainable debt hurts real people and is a shortsighted fix for a flailing economy,” Karen Cox, CEO of Financial Rights Legal Centre, said.

“Watering down credit protections will leave individuals and families at severe risk of being pushed into credit arrangements that will hurt in the long term.”

Gerard Brody, CEO of Consumer Action, said responsible lending laws were there to ensure safe access to credit.

“The Commonwealth Bank recently said that the flow of credit is above pre-COVID levels and that lending is growing at a strong pace. And none of the big banks opposed the responsible lending laws at the recent House of Economics committee hearings.”

“Leaving people with more debt they can afford is no way out of an economic crisis. Pushing too much credit that people can’t afford to repay creates hardship, stress, anxiety for individuals and families,” he warned.

Fiona Guthrie, CEO of Financial Counselling Australia, warned that removing responsible lending obligations would free banks up to aggressively push credit onto their customers

“There is significant profit to be made in pushing borrowers to the edge,” she said.

Bell Potter analyst TS Lim said it was a good day for the banks.

“It’s been a good reaction in the share market today, I guess growth is probably back on the agenda for the banks, but I think they have to be careful not to get too carried away.

“It could also signal that it’s about time they use up some of the capital they have to increase lending. But I think that the banks are aware of the fact that they shouldn’t be chasing market share just for the sake of it. So whatever they do, it has to be profitable,” he told The Australian.

Morningstar analyst Nathan Zaia said, in theory, the changes should make it easier for borrowers to get a loan.

“I don’t think the banks will go out and just give money to anyone who asks for it, they’re in the business of making money. I think it will definitely will help support credit growth,” he said.

Read related topics:CoronavirusWestpac

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Original URL: https://www.theaustralian.com.au/business/financial-services/responsible-lending-overhaul-to-speedup-loans-westpac/news-story/9f44dc39d1bffaa261a0ed045319cbb1