The big banks are pitching the planned rollback of responsible lending laws will help customers, saying it will lead to faster loan approvals by cutting the amount of detail consumers must provide on their living expenses.
In a move that is opposed by the federal opposition, consumer groups, and unions, the federal government is proposing changes that would mean banks are no longer subject to responsible lending obligations.
The government says the overhaul will make it faster for consumers to access credit, while vowing vulnerable borrowers will still be protected through other regulations on banks and redress schemes.
In submissions published on Tuesday, Commonwealth Bank, Westpac and National Australia Bank backed the changes, saying they would remove barriers to credit.
NAB said it would continue to assess if customers could repay their loans without falling into hardship, by assessing their income, expenses, and total debts. But it argued lending was being slowed down by requirements for banks to collect too much information about potential customers’ living expenses.
“The current process requires customers to provide significant details about minor, discretionary and retrospective spending on items such as television subscriptions and food deliveries,” NAB said in a submission to a Senate inquiry.
“This doesn’t account for the changes customers often make to discretionary spending once they have made new loan commitments.”
CBA also said banks were currently asking for information that customers found “burdensome” to provide, and the data did not provide a useful guide on a customer’s ability to repay a loan.
Australian Banking Association chief executive Anna Bligh said applying for a loan could be “trying” for customers. “They are required to produce months of spending information across the spectrum of their lives; from the most regular fixed expenses all the way through to discretionary spending on hairdressers, travel, takeaway food and entertainment,” Ms Bligh said.
The planned changes – which caused bank shares to surge on the day they were announced last year – are strongly opposed by consumer groups and the federal opposition.
A coalition of ten consumer groups warned the changes would strip consumers of their most important legal rights when dealing with banks and brokers.
“The Bill will result in harm to individuals, families and communities, and set Australia up for a household debt disaster as we seek to recover from the COVID-19 crisis,” the submission from groups including Choice and the Consumers Action Law Centre said.
The Australian Council of Trade Unions warned the planned changes would expose the public to irresponsible lending, by removing civil and criminal penalties for unsuitable loans of more than $2000.
Labor has emphasised the first recommendation of the Hayne royal commission into financial misconduct was that responsible lending laws be unchanged.
Responding to critics of the changes, NAB said there was an “understandable concern” about maintaining protections for consumers, but it vowed the changes would not weaken its lending standards.
“The long-term success of NAB, its customers and its shareholders depends on lending to customers who have the capacity to pay back these loans. It is in no one’s interest to weaken the integrity of credit assessment,” NAB said.
Ms Bligh said the recommendation of the banking royal commission on responsible lending was being misrepresented, because this recommendation was made in the context of calls from consumer groups arguing for tougher responsible lending laws.
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