An open letter launched today says axing safe lending laws will be bad for borrowers and the economy, and will contradict findings from the Royal Commission.
Treasurer Josh Frydenberg's plan to make it easier to get a home loan has been opposed by 125 organisations in the letter, which includes the Consumer Action Law Centre, Financial Counselling Australia, and the Australian Council of Social Services (ACOSS).
In a bid to kickstart the COVID recovery, the Federal Government is looking to remove the onus on lenders to ensure they don't lend to people who can't service a loan, shifting the responsibility to borrowers.
The government forecasts the changes will cut through red tape and accelerate the credit approval process.
But community groups believe the reforms will leave people worse off and lead to a debt disaster, with Australia in recession and already having the second highest level of household debt in the world.
Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.
Smart Booster Home Loan
- Discount variable for 1 year <=80% LVR
- No ongoing fees
- Unlimited redraw facility
Monthly repayments: $1,476
- Discount variable for 1 year
- No ongoing fees
- Unlimited redraw facility
Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
"Responsible lending laws were designed to stop the reckless lending we witnessed throughout the global financial crisis and the Royal Commission," Karen Cox, chief executive (CEO) of Financial Rights Legal Centre said.
"It’s beyond belief that less than two years after the royal commission made this its first recommendation that the government wants to go directly against it.
“Before safe laws were introduced, lenders regularly sold unaffordable loans to people, including pensioners, people on Centrelink payments and casual workers, who they knew would never be able to repay the loans.”
In the wake of the Royal Commission and the 'ASIC v Westpac Shiraz case', banks and Reserve Bank (RBA) Governor Philip Lowe, voiced concerns lenders had become too conservative in their lending and the flow of credit was too slow.
Australian Banking Association CEO Anna Bligh said these reforms would be a positive step for the Australian economy.
"The government’s changes will simplify the system while preserving protections and ensuring customers still have a right to have complaints resolved by AFCA [Australian Financial Complaints Authority]," Ms Bligh said.
"A simpler system means a faster, less complicated process for customers.”
Australians exposed to "terrible lending practices"
Fiona Guthrie, CEO of Financial Counselling Australia, said many people were struggling financially at the moment, and the last thing they needed was to be loaded up with more debt.
“We implore the Senate to listen to the warnings of financial counsellors, because our only interest is that of our clients'," Ms Guthrie said.
"We cannot in good conscience sit by and let these laws go through without doing what we can to stop them.
“Even with the current responsible lending laws financial counsellors still see too many vulnerable people with too much debt. We despair at the thought that this will get worse.”
Organisations said the open letter is supported by new national polling which found 79% of people thought banks should be required to always check a customer's ability to repay before offering a mortgage.
Gerard Brody, CEO of Consumer Action Law Centre, said under the reforms, borrowers would have existing rights to sue their lender for unsuitable lending removed.
"Lenders would also have far fewer incentives to comply with good lending standards, because penalties for breaching laws are being removed and weakened," Mr Brody said.
“Newly released November 2020 polling shows that 82% of people believe there should be fair compensation for people when they are wronged by financial institutions.
"The government's plan puts this at risk.”
Over 120 organisations have signed the open letter calling on federal politicians to save safe lending laws. Axing safe lending laws will only hurt people and create a #debtdisaster. Read the letter and add your name too: https://t.co/09DBxkqnnd #debtdisaster pic.twitter.com/u0Fxshu8zt— CHOICE (@choiceaustralia) November 23, 2020
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.
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