Proposed responsible lending reforms have been withdrawn from consideration by the Senate.
Proposed responsible lending reforms have been withdrawn from consideration by the Senate.

Responsible lending laws on the backburner

Consumer groups hope the Morrison government will abandon its proposed easing of responsible lending laws after draft legislation was withdrawn from the Senate on Wednesday.

While the House of Representatives passed the bill, there was insufficient support to bring on an early debate in the Senate.

Estimates is scheduled for next week, with parliament to resume in May for the budget session.

This led to speculation the controversial reforms were now on the backburner until at least June. But it is understood the government remains committed to the changes.

However, Consumer Action Law Centre chief executive Gerard Brody said on Thursday he was "hopeful" they would now be dumped.

"I'm telling senators they should oppose the changes and that they're right if they have concerns," Mr Brody said.

"The bill was announced when the economy was tanking but the property market is now hot, so one of its key justifications no longer exists.

"If the legislation is passed, there will be diminished accountability for banks and individual legal rights will be taken away."

The banking industry and its lobby group the Australian Banking Association, as well as small business groups, have been strong supporters of the pullback, which was announced by Josh Frydenberg last September as part of the government's recovery plan.

The Treasurer said recently that changes to the legislation would simplify the nation's credit framework, ensuring consumers and small businesses could get timely access to credit as the economy continued to recover from the pandemic.

"The reforms are intended to improve efficiency, reducing the time and cost associated with the provision of credit for consumers," he said.

"The current regulatory framework, which was put in place more than 10 years ago, too often leads to delays in consumers receiving credit, potentially impeding their purchasing decisions.

"Now, more than ever, it is important that there are no unnecessary barriers to the flow of credit to households and business, especially small and medium-sized businesses, as the economy recovers."





The key elements of the reforms include removal of responsible lending obligations from the National Consumer Credit Act, apart from small amount credit contracts and consumer leases where heightened obligations would be introduced. Lenders would also be permitted to rely on information provided by bor­rowers, replacing the current practice of "lender beware" with a "borrower responsibility" framework.

Banks would have to continue to comply with lending standards requiring sound credit assessment and approval criteria, overseen by the Australian Prudential Regulation Authority. The ABA told a Senate hearing last month that the reforms meant less time and paperwork for borrowers, not less scrutiny for lenders, and less reliance on "obscure discretionary spending" during the loan assessment.

More attention could be paid to the factors that counted, according to the lobby group, such as income expenses and debt.

The ABA also argued that the Australian Financial Complaints Authority offered a free complaints service and had a broader remit and more powers than its predecessors.

"The government's reforms in this bill do not the affect the rights of customers to bring a lending complaint to AFCA," the group said.

The Housing Industry Association told the same hearing that the average time to assess a mortgage had jumped from about two weeks to two months, and the number of customers rejected for finance increased from 7-9 per cent to 17-19 per cent.

"The consequence of that is we see a decline in home ownership," the HIA said.

The main argument of the consumer groups is that the 2018 Hayne royal commission recommended stricter enforcement of responsible lending obligations, not easing them.

"The government's proposal directly contradicts this recommendation and ignores the work of the banking royal commission," the Consumer Action Law Centre said.

"The stories shared at the banking royal commission ­shocked Australia and demonstrated the need for stronger rules and oversight of financial services. Removing lending obligations would reduce both the oversight of, and consequences for, misconduct by these very same lenders."

Originally published as Responsible lending laws on the backburner

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