Industry welcomes RLO certainty

Last week, the Assistant Treasurer and Minister for Financial Services, Stephen Jones MP (member for Whitlam), confirmed that the federal government will not be moving to repeal responsible lending laws.

While speaking at the Responsible Lending and Borrowing Summit in Sydney on 12 July, Mr Jones highlighted that the party had been “gobsmacked” when the Morrison government had moved to amend the credit laws so that they removed responsible lending obligations (RLOs), among other changes.

“I am glad to say we were able to defeat those attempts in Opposition,” he said.

“So, we won’t be revisiting RLOs in government.”

Given that the RLO repeal had been stagnating in parliament over a prolonged period — and the fact that few industry players had called for the repeal of RLOs in the first place — both banking and broking associations have now welcomed the certainty of the future of responsible lending.

While the Australian Banking Association (ABA) had not actively advocated for RLO repeals, CEO Anna Bligh had said last year that she was in favour of “any changes to laws that would make the application and approval process faster, smoother, and easier for customers”.

“These laws are 10 years old, having a look at them and updating them, it’s not a bad thing. But it is entirely a matter for Parliament. If the Parliament changes the laws, banks will adapt their processes accordingly,” she said.

Speaking to Mortgage Business following Mr Jones’s confirmation that RLOs will not be revisited, Ms Bligh said the association “and Australian banks have always been, and continue to remain, firmly committed to responsible lending practices".

“The ABA welcomes the further clarity provided by the Federal Government in this important policy area,” the ABA CEO said.

Broking associations have also welcomed the confirmation that the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 will not be revisited.

The managing director of the Finance Brokers Association of Australia (FBAA), Peter White, noted that while it had been known that the responsible lending repeal would not go ahead, he welcomed the public certainty, and the fact that the objections the association had previously raised were now “mitigated”.

For example, Mr White explained that changes would have resulted in two regulatory 'masters'.

He explained: “APRA would govern the ADIs and ASIC would govern the non-ADIs. The FBAA has, on multiple occasions, raised concerns about ASIC overreaching, and we were very concerned that would happen again here and the non-banks / non-ADIs would have a higher bar above the law than the ADIs/banks. 

“This would have created market distortions and potentially anti-competitive outcomes disadvantaging consumers and the non-banking sector. 

“With the repeal no longer proceeding, this is no longer a concern.”

While the bill largely focuses on amending the credit laws so that they remove RLOs, there was also a proposal to extend the best interests duty (BID), currently in place for mortgage brokers, to finance brokers, among other changes.

Mr White noted that the ditching of the repeal means that “this is not happening now, either. So for now, finance brokers (as distinguished from mortgage brokers under BID) do not hold a fiduciary Best Interests Duty obligation under law”.

He continued: “This means finance brokers will potentially miss out on some benefits (for example, open banking) whereas mortgage brokers will directly benefit from this.

“If finance brokers were directly bought under BID, then all consumer brokers would be under the one set of rules. Rightly or wrongly, this would have been a simpler and more manageable governance. But for now, technically, they are split considerations under law.”

Mr White continued: “If the government of the time actually listened to industry and applied BID to the product (and not to the broker) then none of this would be an issue today.“

The FBAA MD concluded: “For now, the current (and historic) responsible lending obligations continue to apply as they have for a long time. The thing to watch, however, is whether the banks restrict access to appropriate levels of debt for businesses, as this was one thing that was going to be encapsulated with the repeal. 

“We now need to rely on APRA and government to ensure the wheels of the business economies keep turning appropriately, and that they can access appropriate levels of debt as needed,” Mr White said.

[Related: Labor ‘won’t be revisiting RLOs’: Assistant Treasurer]