Aussies don't need more irresponsible lending - Speech, House of Representatives


Credit for the most awkward photo opportunity of recent years must go to Treasurer Josh Frydenberg and that moment when he was accepting the Hayne royal commission report. It was very clear that Treasurer Frydenberg wanted to wrap his arms around Kenneth Hayne and get a full endorsement for his economic policies. He didn't get that, and he hasn't returned it.

Despite the government saying at the time that they received the royal commission report that they would act on all its recommendations, there's now a bill before the House—the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020—which sees the Morrison Government going against recommendation 1.1. That's it. The number one recommendation of the Hayne royal commission—don't water down responsible lending laws. What are we doing today? We're debating the Morrison Government's attempt to water down responsible lending laws.

Did the big banks ask for it? No. It doesn't look as though they did. From all accounts, it appears to be an ideological frolic from the Morrison government in reducing consumer protections. This is the very same coalition that fought against sensible reforms to protect consumers against financial misfeasance, put in place by the Rudd and Gillard governments.

I remember being here in this place while then shadow Treasurer Hockey railed against the responsible lending changes that were being put in place by Labor. What do responsible lending laws do? They ensure that lenders assess whether a credit product is suitable for a customer before providing that product to the customer. Those provisions are enforced by ASIC and have not caused a great choking off of credit supply. Indeed, if you look at what's happening with credit at the moment, we have an Australia in which the level of household debt is among the highest in the world.

Is Australia really in need of more irresponsible lending? Do we need to further increase the debt ratios of Australian households? Right now, we have some of the highest auction clearance rates on record. Housing markets, particularly in our big cities, are going gangbusters, making it more difficult than ever for young people to get into the housing market, yet this government says the answer to all that is more irresponsible lending, watering down the standards, and taking the responsibility away from the borrower and putting it on the lender. It's always the way with the Liberals. Give them a chance, and they will resort to that old 'caveat emptor' approach. They think the job of deciding whether lending is responsible shouldn't fall on the multibillion-dollar institution that is extending the funds. No, they say it should fall on the mums and dads—the same mums and dads who were victims of Storm Financial's collapse, leaving them not only with no savings but sometimes with debts that lingered for decades.

The very behaviour of big financial institutions that led to the Hayne royal commission—and, indeed, in the United States, the sort of poor behaviour that pre-empted the global financial crisis—is now being encouraged by the coalition. The watering down of financial protections that we see from the US Republicans that caused so much damage to the United States' financial system is now playing out here in Australia. For lack of any clear economic agenda and for lack of a plan for boosting productivity and increasing wages, we have instead the coalition dipping into their ideological top drawer, looking to do the bidding of the big financial institutions against the interests of regular Australians. What do the consumer groups say about this? A letter from 122 organisations and 97 prominent Australians last year urged the federal government not to go ahead with its watering down of safe lending laws. Supporters of that letter included the Australian Council of Trade Unions, the Australian Council of Social Service, Anglicare, religious groups, community groups, and legal and family violence associations from across Australia. As Alan Kirkland, the CEO of CHOICE, has said:

Without safe lending protections many Australians will be exposed to the terrible lending practices we saw in the lead-up to the global financial crisis.

Fiona Guthrie, CEO of Financial Counselling Australia, said:

Many people are struggling financially at the moment and the last thing they need is to be loaded up with more debt. Financial counsellors see at first hand the harm caused to people and families when they struggle to make repayments.

She went on:

We cannot in good conscience sit by and let these laws go through without doing what we can to stop them. That's also why financial counsellors from around Australia are writing to their local politicians …

Karen Cox, the CEO of the Financial Rights Legal Centre, said:

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.

As she pointed out:

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.

The real risk is that we change the incentives for lenders: we remove or weaken penalties for breaching safe lending laws, and then we see an increase in irresponsible lending.

These changes will reduce verification requirements for lenders, replacing the current practice of lender responsibility with borrower responsibility. There will be two separate enforcement regimes, with enforcement of lending standards staying with APRA for authorised deposit-taking institution lenders but moving to ASIC for lenders that are not authorised deposit-taking institutions, separating the enforcement regimes and again creating a risk of multiple standards and the watering down of protections for consumers.

There's going to be an exemption of business lending from protections, regardless of the proportion of the loan that is for a business purpose. That replaces the existing predominant purpose test designed to prevent avoidance. So, if you just ensure that a small share of the loan is for business purposes, you've taken yourself out of the financial protection regime. But we know that many small businesses operate as family businesses. Indeed, if anyone knows that, it should be the coalition, because they put the word 'family' in next to 'small business' in their portfolio and in the title of the ombudsman. They ought to know the way in which these loans can be intertwined. They ought to be standing on the side of small and family businesses. But yet again the coalition have found themselves—as when they voted 26 times against a banking royal commission—standing on the side of the big banks, not on the side of mums and dads, and standing on the side of large financial institutions, not on the side of Australians who need protection.

Academics have warned about the risk posed by these changes. Eliza Wu from the University of Sydney says these reforms could 'sow the seeds of the next housing boom and the next debt crisis'. Treasury's own submission to the banking royal commission said:

There is little evidence to suggest that the recent tightening in credit standards … has materially affected the overall availability of credit.

So there's no case being made for it by Treasury. There's no case being made for it by consumer groups. We're in an economy in which lending for housing has increased, house prices are booming, consumer credit is broadly available and many economists are warning of the danger to the economy of a crushing household debt burden, the risk that too many Australian households could be exposed to excessive debt.

The Treasurer said that the events of that preceded the royal commission were, in his words, 'appalling'. Indeed, as the member for Whitlam pointed out, the Treasurer confected concerns about a teenager with Down syndrome who was sold life insurance by an unscrupulous, commission-hungry bank salesman. Yet, when that young man's father wrote to Treasurer Frydenberg and begged him not to scrap responsible lending laws, he never even got a response. Treasurer Frydenberg is willing to cry crocodile tears for past victims of banking misconduct, but he's not willing to listen to those victims when they say, 'Don't water down responsible lending laws.'

The industry will, of course, accept it. They'll take anything that reduces their responsibilities to do lending checks. But they're not out there demanding it. This is not a core demand from the industry. And consumer groups, such as the Consumer Action Law Centre, have told stories about the clients that they assessed. The Consumer Action Law Centre gives a case study of a woman whom they call Silvia, whose only source of income is the pension, who has no savings, who suffers from depression and has had past issues with addiction, and who has done all her banking for the last 20 years with the same big four bank. The case study says:

Earlier this year, Silvia went into her bank branch in the outer suburbs of Melbourne and took out a $25,000 loan, which was secured over her home (which she previously owned outright). Silvia says that she had originally asked for $20,000 and told the bank representative that she wanted it to pay off $5,000 she owed on her credit card, and to do some home improvements.

Silvia recounted that the bank representative asked her some questions about her finances, and then the representative told her she was going to receive a $25,000 loan—$5,000 more than she asked for. She felt that they didn't really give her a choice about getting a loan for a lower amount.

Silva needed to pay $133 a fortnight, 14 per cent of her pension, at a time when she was already having troubles making ends meet with her groceries, home and contents insurance and health insurance, when she was already living one cheque to another. The case study goes on:

While Silvia managed to make the repayments, the loan was causing her a great deal of stress. She has attempted suicide because of stress. The loan repayments were direct debited from her account a few days after her pension is paid each fortnight. The real reason Silvia didn’t miss any repayments is because she still had the loan funds to pay for things. She spent most of the loan funds already, and she only has $7,000 left.

Silvia complained to the bank, claiming the loan was provided in breach of responsible lending laws as it was larger than the loan she requested and the repayments were causing her financial hardship. The bank acknowledged that it could have been more prudent in advancing the funds, and offered to waive all future interest on the loan, and refund any interest already paid.

What would have happened to Silvia without responsible lending laws? Without responsible lending laws, the bank could have simply told her to go away. They wouldn't have had any obligations. Silvia, a pensioner who suffers from depression and who attempted to take her own life, would not have had the protection of responsible lending laws.

This bill before the House, mark my words, is the kind of bill brought before the parliament by a government with no agenda. They have no plan for rapidly vaccinating Australia. At a time when the vaccine rollout is occurring apace in countries like Britain and the United States, it is falling behind in Australia. The Treasurer told us last year that the state lockdowns of the economy were costing $4 billion a week, but, now, as a delayed vaccine rollout prevents a full reopening of the economy, the government is refusing to take responsibility for the economic cost that it is inflicting, not to mention the health risk that exists for vulnerable Australians.

Over the weekend, we saw fresh outbreaks of COVID, and it points to the urgency of moving ahead with the vaccination. But, at the same time, Australia needs a government with ambition, a government that acts like the governments of Curtin and Chifley did at the end of World War II, with the full employment white paper that said: 'Let's not just put the place back the way it was in 1939. Let's do better and aspire to full employment and aspire to increasing homeownership.' The Morrison government stands for nothing. It has no agenda, it is lacklustre and this bill before the House reflects all that is rotten with the government today. 


Authorised by Paul Erickson, ALP, Canberra.

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  • Brendan Johnston
    commented 2021-03-16 17:21:13 +1100
    Hi Andrew.

    What I think you mean is that the government are taking responsibility from the lender and putting it on the borrower. But your wording in the sentence below does not make this clear to me.

    > Housing markets, particularly in our big cities, are going gangbusters, making it more difficult than ever for young people to get into the housing market, yet this government says the answer to all that is more irresponsible lending, watering down the standards, and taking the responsibility away from the borrower and putting it on the lender.

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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | [email protected] | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.