Coronavirus: Crossbench lobbied to block lending bill

Legal advocacy groups are lobbying Senate crossbenchers to vote against a government bill winding back responsible lending obligations.

Consumer Action Law Centre chief executive Gerard Brody. Picture: Stuart McEvoy

Legal advocacy groups are lobbying Senate crossbenchers to vote against a government bill winding back responsible lending obligations, saying it will be a retrograde step for consumer protection and put vulnerable Australians at risk of crippling debt.

The proposed legislation, announced by the Morrison government in September, is designed to stimulate the flow of credit and bolster Australia’s recovery from the COVID-induced recession.

A joint submission to a Senate inquiry, led by the Consumer Action Law Centre, said looser lending would reduce the incentive for banks to comply with lending standards because of the removal of penalties. “Repealing responsible lending obligations in the nat­ional credit legislation will remove individual legal rights to challenge lenders about their lending decisions and remove the penalty that can be awarded by the regulator ASIC,” centre executive Gerard Brody said.

He said the impact of the laws would reach all Australians, but those who were financially vulnerable were at particular risk.

“All consumers rely on their lender to make assessments and let them know what amounts they can borrow and what is affordable. We now risk lenders going back to being about selling credit rather than ensuring loans are ­affordable,” he said.

The proposed legislation will wind back responsible lending obligations to credit contracts under $2000 and consumer leases. Current legislation, introduced in 2009, requires banks to check the financial situation and objectives of each borrower applying for credit.

Mr Brody said soaring loan numbers contradicted the premise of the legislation that the economy was crippled by a lack of credit flow. “The ABS lending data indicates that growth of new loans is at a record high and that includes occupier home loans. Commitment to new dwelling is also at a significant high and value of total loan commitments including personal finance is also rising,” he said.

Kenneth Hayne’s banking royal commission report, handed down two years ago, recommended that consumer credit laws remain unchanged.

“It does seem to be a broken promise by the government to implement the Hayne recommendations. He was clear responsible lending provisions should be retained and more adequately enforced,” Mr Brody said.

NSW Legal Aid, which also submitted to the inquiry, said the scrapping of responsible lending would lead to vulnerable customers, such as Australians with cognitive impairments, low levels of literacy, young people and Aboriginal and Torres Strait Islander people, obtaining unaffordable loans.

In December, the National Consumer Credit Protection Amendment bill was referred to a Senate Committee which will table its report in March. The Morrison government will need to negotiate with crossbench senators, Labor and the Greens.