‘It'll be a debt disaster’: Community groups condemn plan to axe safe lending laws
25 November 2020 at 12:07 pm
Financial counsellors say the proposed responsible lending reforms will sow the seeds of the next financial crisis
Community groups fear they will be left to pick up the pieces if the Morrison government’s plan to axe responsible lending laws passes the Senate.
In an open letter launched on Tuesday, 125 organisations and 97 prominent Australians have urged Senators to block legislation that would weaken safe lending laws protecting people against aggressive lending approaches.
Anglicare, The Salvation Army and the Australian Council of Social Service are among the charities that have signed the letter, which said the proposed legislation contradicts the very first recommendation of the banking royal commission.
The final royal commission report said that the National Consumer Credit Act should not be amended in a way that alters lenders’ obligation to assess if someone is suitable for a loan, but community groups say the proposed laws would do just that.
“The banking royal commission heard shocking stories of banks giving aged pensioners 30-year mortgages, relying on fraudulent loan documents provided by car dealers, and paying thousands in kickbacks to loan ‘introducers’,” the letter said.
“We’ll see even more of this if banks and other lenders are not legally required to take care when lending.”
Financial Counselling Australia CEO Fiona Guthrie told Pro Bono News that these laws would cause great harm to vulnerable people and the economy.
“It’ll be a debt disaster,” Guthrie said.
“There will be more people loaded up with unaffordable debt. Victims of family violence, those with mental health issues, people with low financial literacy or whose first language isn’t English… will all be particularly at risk.
“We’ve got the second highest household debt to income in the world. And so the long-term economic impact is also quite concerning because more debt is not going to help us get through a recession, but will just prolong it.”
Guthrie said these laws will consequently put a strain on financial counsellors and the broader community sector.
She said while financial counselling services were relatively quiet at the moment due to the JobSeeker supplement and JobKeeper, this could soon change as these government supports wind down.
“At the same time [coronavirus support payments] come to an end, we are pulling away responsible lending protection. And the impact is going to be that our services will be busier than ever,” she said.
“We’ll be left to pick up the pieces.”
Treasurer Josh Frydenberg said these changes are needed to help Australia’s COVID-19 recovery.
He said banks have become too risk averse with their lending and that reform is necessary to increase the flow of credit to small businesses and households.
Some business sector advocates – including Australian Small Business and Family Enterprise Ombudsman Kate Carnell and former ANZ chief economist Warren Hogan – have backed the legislation.
But Guthrie believes this argument does not stack up.
“There is no issue with the supply of credit in Australia,” she said.
“It might be that we’ll see lower demand. And that will be because we’ve got nearly a million people unemployed and people are going to be really cautious. And so they should be.
“Responsible lending is not stopping credit flowing.”
With the Greens and Labor expected to oppose the bill in the Senate, Guthrie said the legislation currently hangs in the balance.
Financial counsellors are pushing to meet with senators to personally explain the impact these reforms would have on their clients.
Guthrie said it was vital that the opposition and crossbench oppose any move to weaken consumer protections.
“If this [bill passes] it will just be sowing the seeds of the next financial crisis. We’ll need another royal commission to sort it out,” she said.
“And people will look back and say, ‘why on earth did you take away responsible lending laws?’”
