Australia’s lending laws are overdue for an overhaul
They say a week is a long time in politics. If that’s true – eleven years is an eternity.
That’s how long it’s been since the Australian parliament passed the National Consumer Credit Protection Act to “modernise Australia’s consumer credit laws”.
It was 2009; smack in the middle of the fallout from the global financial crisis. So this law was touted as an important piece of reform. To quote Chris Bowen, the then Minister for Financial Services, Superannuation and Corporate Law: “This piece of legislation will—for the first time in our country’s history—provide for one, single, standard and uniform regime for consumer credit regulation and oversight.”
The problem is, it hasn’t.
In the years since, it has been over-run by hundreds of pages of guidance and expectations, different rules across different regulators, and new consumer protections introduced before and after the Royal Commission.
This patchwork has made the process of getting a loan more difficult and onerous.
Right now borrowers need confidence that when they apply for a loan the process will be fair, robust, efficient, and not onerous.
Many Australians will be familiar with the frustration of waiting a long time for a bank’s approval and having to provide pages and pages of personal spending information, right down to their takeaway food habits. All of this, despite evidence from across Australia’s banks, that it is unforeseeable events such as a job loss or marriage breakdown that are the primary drivers of loan defaults, not one too many cheeseburgers.
The current regime also means an existing customer who has been with a bank for decades and made all their payments on time is treated the same as a brand new customer with whom the bank has no relationship, and no history. This doesn’t make sense.
Access to credit opens up opportunities and fulfils aspirations. It enables the purchase of a car to get to work, it enables the purchase of a home to secure a family’s future prosperity. It allows the creation or expansion of a business that employs people and drives economic growth. Getting it right requires the right balance between consumer protections and the flow of credit. Too loose on protections and customers can get in over their head, too tight and the healthy aspirations of customers to get ahead will be crushed.
When the times change so must our laws. Parliaments are not a place of set and forget. And so much has changed since 2009 that it’s only sensible for the government to look again at this law, and the provisions now known as “responsible lending”. There are now more remedies for customers, and more penalties for banks.
Back in 2009, the Australian Financial Complaints Authority (AFCA) didn’t even exist. This brand new agency has more powers and provides more remedies to customers with a complaint than anything that existed a decade ago. Technology has changed. Banks have more data to better understand customers, without forensic examination of income and expenses. New credit reporting laws will soon provide banks with a full and accurate picture of a customer’s repayment history and a new “open banking” regime will give customers the ability to digitally transfer their account information between banks to get a better or cheaper loan.
Some have claimed that if the government reforms succeed, it means the notion of responsible lending is dead, and we will have a lending free-for-all.
This is wrong. The notion of “responsible lending” is entrenched in our system. It’s not confined to provisions of the NCCP Act which the proposed reforms seek to remove. It is embedded across several regulators, including ASIC, APRA and the ACCC, reflected by AFCA. APRA has a proven track record of handing down stiff penalties to banks – often in a form that banks hate – the requirement to hold more capital.
The combination of these remaining regulations will continue to ensure that appropriate assessments are made of a borrower’s ability to service a loan, and customers have an available remedy in AFCA. Customers and regulators will still have recourse to the courts, and commercial imperatives also play their part. No bank has an interest in lending to a customer that cannot repay.
Throughout the pandemic, banks have maintained the flow of credit to the economy with continued growth in home lending, as well as more than $50 billion in lending to small businesses since February. But this masks the true impact of over-regulation: delays in approvals and inefficient processes. This is not merely frustrating for customers, but can impede the ability to get into the housing market at an affordable time or the opportunity to buy critical equipment at the best price.
Right now borrowers need confidence that when they apply for a loan the process will be fair, robust, efficient, and not onerous. These reforms will place credit decisions in the realm of one regulator, not two. They will restore confidence across the economy, and make it easier and simpler for Australians to get a loan and survive the worst recession in a hundred years.
Anna Bligh is the CEO of the Australian Banking Association
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