Responsible lending debate heats up in Parliament

Members of Parliament have gone head-to-head debating the repeal of responsible lending laws in the House of Representatives this week, as tempers flared and partisan politics came into play.

The second reading and debate of the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 took place this week, starting on Wednesday (24 February) and extending out over yesterday (25 February), as politicians continue to voice the pros and cons of the ramifications of the proposed changes.

The bill – which also includes the proposal to extend the best interests duty (BID) to all credit assistance providers when writing consumer finance – has been one of contention, with the government suggesting that removing responsible lending obligations from lenders and brokers would reduce the time it takes for individuals and small businesses to access credit and streamline lending regulation. 

However, concerns have been raised by some non-bank lenders, as well as members of the Labor Party and consumer groups.

Labor MPs lambast government

During this debate week, several members of the opposition lambasted the government for even proposing the bill, suggesting that it would harm consumers, go against the first recommendation of commissioner Hayne following the royal commission (“The NCCP Act should not be amended to alter the obligation to assess unsuitability”), and was unnecessary given record levels of loan commitments.

Indeed, Stephen Jones MP, who represents the Division of Whitlam for the Australian Labor Party and is the party’s financial services spokesman, said the house would decline to give the bill a second reading and called on the government to “respect the findings of commissioner Hayne”, “not weaken Australia’s credit laws” and “pass legislation that will actually support Australia’s economic recovery, rather than overturn recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry”.

Speaking on Wednesday, Mr Jones labelled the bill as “a breach of faith with the Australian people”.

“It’s a broken promise. It’s said to be about the flow of credit in the Australian economy. It’s not. It’s a policy orphan. It’s a problem in search of a solution,” he said, evoking the stories of those laid out in the banking royal commission submissions regarding lender misconduct.

“Those of good conscience in the Coalition party room are going to have an opportunity tomorrow to do the right thing,” he said.

“We’re calling on them to do exactly that. They’ve promised that things are going to change. They can be a part of that change. They can keep their promises and do the right thing or they can proceed and break the promises that they made to their constituents before the last election, and we will remind every single one of them of what they’ve done.”

The following day, several other members of the opposition joined the debate to voice outrage and concern at the implications of removing responsible lending laws.

Among some of the more impassioned speeches made from members of the Labor Party on Thursday included Dr Jim Chalmers’s (MP for Rankin) accusation that the government wanted to “make it easier for the financial institutions of this country to do more of the kind of rorts and rip-offs the Hayne royal commission uncovered”.

Suggesting that the proposal “beggars belief”, he added: “If it’s not about removing obstacles to lending, which is at record highs, we know what it’s really about: it’s about unwinding consumer protections.”

Matt Thistlethwaite (MP for Kingsford Smith) said the repeal was “unbelievable” given the unprecedented numbers of Australians who have had to ask for loan deferrals amid COVID-19. 

“It simply defies logic. The last thing people need now is inappropriate and unaffordable credit,” he said.

Daniel Mulino (MP for Fraser) said the “absolutely reprehensible bill” was a “massive retrograde ideological step backwards in our regulatory framework” and “a remarkable act of maladministration”.

“This will become a case study for public policy departments around the country in how not to undertake regulatory change,” he said.

Milton Dick (MP for Oxley) ruffled feathers when he suggested that the government “is yet to find a bank or a loan shark that they don’t want to help or one that, when it puts its hand out, they don’t want to lift up”.

Opposition Whip Joanne Ryan (MP for Lalor) said the bill “flies in the face of logic. Most importantly, it flies in the face of the government’s own recommendations around payday lenders and loan sharks, and it flies in the face of a royal commission”.

Labor MP for Gilmore, Fiona Phillips, said she was “shocked” to be “defending the current consumer protections from being watered down”.

“In a nutshell, this bill will shift the responsibility from lenders to borrowers, reducing protections for borrowers in the event credit decisions are made on the basis of incorrect information.

“I cannot comprehend why the government is looking to do this after everything we have learned from and seen throughout the royal commission process. It’s a betrayal of every witness, of every Australian who has had their life devastated by irresponsible lending. More than that, it is dangerous and will have shocking consequences for so many vulnerable people.”

What Liberal MPs said

However, several Liberal MPs retorted that the bill was “urgent and necessary” as the responsible lending laws are “throttling businesses in this country”.

Andrew Wallace (MP for Fischer) said that while the intent of the laws were good, responsible lending provisions have “become a millstone around the neck of this country”. 

Highlighting that banks would still need to comply with APRA’s lending standards, requiring sound credit assessment and approvals criteria, he added that consumers would also continue to be protected. 

However, he suggested credit could be released more quickly by repealing RLOs.

“$34 billion a month in credit sits under these regulations. In a post-COVID world, we will need that credit to flow quickly and efficiently.”

He continued: “[The responsible lending regime was not intended to be as onerous as it has become. Nor was it intended to apply to small-business loans. However, in the strict regulatory environment that has understandably followed the financial services royal commission, the reality has become very different. 

“Regulators and loan providers alike have become substantially overcautious, introducing requirements that go far beyond the basic legislative tests and spreading responsible lending practices to all kinds of credit.”

“We need legislative clarity to replace the increasingly complex guidance provided by regulators and get the flow of credit moving again. I cannot stress how important this is for Australian businesses today,” he said.

Similarly, his fellow party member and chair of the standing committee on economics, Tim Wilson (MP for Goldstein), suggested that the RLOs were actually harming those who most need support.

“The restrictive lending legislation harms the poor. It harms the people on low incomes. It harms small businesses that want to grow. It harms people who don’t have security. We all understand there’s got to be proportionate risk around security as part of the process of lending, but these laws needlessly make it harder and create extra hurdles and barriers to the young, to those on low incomes, to those who want to get ahead and take risks so they might have their opportunity too.”

“Frankly, these laws are farcical in their operation today,” he said, offering up a first-hand example of delays by revealing that he had to “fill out 30 pages and wait three weeks” to increase the limit on his credit card recently.

He lampooned the opposition for their fiery rhetoric, stating: “The removal of restrictive lending laws would not lead to the ridiculous circumstances boasted by those on the opposition benches. 

“The macroprudential framework that has been put in place by the regulators would ensure that lending was appropriate. 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.”

Garth Hamilton (MP for Groom) agreed, telling the house: “This bill will help facilitate, rather than hinder, the economic recovery and protect consumers and borrowers.”

“This is not about the short term. This is not about getting a rush of credit. As part of our recovery plan, this bill is about improving the financial services sector for the medium to longer term. 

“This bill removes excessive, duplicative barriers that hamper access to credit approval and make the process more timely. 

“Our regulatory framework does not have to be burdensome to be strong, and this bill demonstrates as much.”

The Member for Longman, Terry Young, said he had spoken to small-business owners in his community who had said they were “struggling to get finances to expand, to open new businesses. So this is a welcome bill, in their view”.

“The reforms will remove unnecessary barriers to credit while maintaining important consumer protections for those who need them. It’s our job as a government to remove barriers, not put them up. It’s our job to make it easier to do business in this country, not harder. And these reforms will do that,” he said.

“It is vital that credit continues to flow in the Australian economy, with the appropriate consumer protections in place. It is my belief that this amendment achieves that outcome.”

Mr Young concluded: “The changes we are proposing will reduce the time and cost of credit assessments for consumers and businesses, cut red tape for consumers seeking a credit product, improve competition by making it easier to switch lenders and enhance access to credit for small businesses. It’s important to note, though, that improved lending flexibility will not diminish the consumer protections in place. In fact, for some products, these protections will be enhanced.”

The Senate economics legislation committee will also delve into the responsible lending bill today (26 February), as it holds its second hearing into the matter.

Witnesses today will include the Commercial & Asset Finance Brokers Association of Australia, as well as financial regulators and Treasury.

[Related: Concerns raised to Senate on responsible lending changes]