CCR should be voluntary for smaller lenders: COBA

On Thursday (2 November), Treasurer Scott Morrison announced that the government will introduce a mandatory CCR regime from next year, starting with the big four banks, which account for more than 80 per cent of the residential mortgage market.

COBA’s position is that participation in CCR should be voluntary for smaller lenders as they have more of an incentive to participate than the largest lenders and should be able to do so according to their own priorities and resources.

COBA acting CEO Dominic Dunn said: “The landmark Financial System Inquiry (FSI) report in 2014 found that the net benefits of participating will differ between different classes of credit provider.

“For a major institution with a relatively large customer base, early participation may provide, at least initially, relatively larger benefits to smaller participants than for the institution itself.

“But as participation and system-wide data grow, net benefits increase for all CCR participants.” 

The industry body said that CCR has the potential to increase competition as lenders access more information about consumers, better enabling them to match credit types and amounts to borrower capacity. Under the new regime, which comes into effect on 1 July 2018, lenders will have capacity to more accurately price credit relative to the risk profile of the borrower.

“The banking market is an oligopoly and regulatory interventions must be designed to give the competitive fringe of smaller players every chance to take on the major banks,” Mr Dunn said. 

“The Treasurer’s announcement on CCR is consistent with this approach. Regulatory compliance costs have a big impact on the competitive capacity of smaller players.”

[Related: Government announces mandatory credit regime]