A report released on Friday has supported the Federal Government's plan to axe responsible lending laws, with the Bill being debated in Parliament today.
The Senate Economics Legislation Committee noted a well-functioning credit market was essential for economic growth, and the current consumer credit laws may be over prescriptive.
"The committee is concerned by evidence that the regulatory framework has resulted in consumers being unable to access credit in a timely manner to buy their first home or to obtain a grant under the HomeBuilder scheme," it said in the report.
"The committee is also concerned by the invasive and onerous nature of the inquiry and verification processes required under the existing responsible lending obligations."
Buying a home or looking to refinance? The table below features home loans with some of the lowest 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, fixed, 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 introduced in 2009 by the Rudd Government in the wake of the Global Financial Crisis, and were recommended to be made permanent by the Hayne Royal Commission.
Treasurer Josh Frydenberg announced plans to repeal the laws in September, speeding up the credit approval process and making it easier to get a loan.
However, the latest lending indicators data from the Australian Bureau of Statistics (ABS) showed new home lending in January was up almost 45% from the same time last year, while first home buyer numbers were up almost 71%.
An open letter against the axing of the laws was penned by 125 organisations in November and the report noted these concerns and others, but held the view consumers would not be less safe without them.
"The committee is of the view that these regulatory changes will not undermine consumer protections and that the principal of 'responsible lending' is deeply embedded in Australia's broader regulatory framework, which credit providers and credit assistance providers must still operate within and comply with."
Labor and The Greens have opposed the changes and will vote against them, with the deciding votes coming down to the crossbench, who are likely to side with the government and pass the Bill into law.
Consumer groups "gobsmacked" by report's findings
Alycia Gawthorne, Campaigns & Advocacy Adviser for Consumer Action Law Centre, said the government's decision to push ahead with the Bill defied all logic.
“In 2015 the Government initiated a review of predatory lending laws, which made some really sensible recommendations for reform to make sure people don’t fall into a debt trap. The Government accepted the majority of these recommendations and even released draft legislation," Ms Gawthorne said.
“It’s absolutely mind boggling that now – more than five years later – the same Government is introducing laws that fail to meet the basic level of protections recommended by its own review, while taking an axe to responsible lending protections for other types of credit.”
Ms Gawthorne said many people were still trying to get back on their feet after experiencing financial hardship as a result of the pandemic.
“With crucial income support measures due to wind up at the end of the month, the Government’s Bill will see people sent straight into the clutches of predatory lenders.
“We’re counting on the crossbench senators to take a stand and vote against this Bill, which if passed, will have devastating impacts for our community and economy.”
Bill aimed at enabling Australians access to credit
Liberal MP Tim Wilson said empowerment through homeownership was critical to Australia's economic landscape and would not lead to the "ridiculous circumstances" forecast by Labor and others.
"The macroprudential framework that has been put in place by the regulators would ensure that lending was appropriate," Mr Wilson said.
"What we wouldn't have is needless paperwork and needless delay to 'yes'. We wouldn't have needless situations where young Australians who want to buy their first home miss out because the law gets in their way.
"What we want to do is make sure that the law not only protects consumers but also empowers them."
Shadow Treasurer Dr Jim Chalmers said the government was using the recession and pandemic to unwind important consumer protections in the financial system.
"It's like they weren't paying attention to the Hayne royal commission and the rorts and rip-offs that it uncovered," Dr Chalmers said.
"Those opposite get given a big report about all the rorts and rip-offs in the banking system, and their first inclination is: 'How can we unwind these protections, which the royal commission advised in its first recommendation that we should keep?
"That is ridiculous. It really is next level to use this pandemic as an excuse to go after consumers."
Image source: Twitter