Changes to simplify Australia's credit framework
Responsible lending law reforms remain on the government’s radar despite delays in getting the changes passed in the Federal Parliament.
Under the Australian government’s economy recovery plan, the proposed changes aim to reduce the cost and time it takes for consumers and businesses to access credit.
Referring to credit as the “lifeblood of the Australian economy”, the Treasurer Josh Frydenberg and Minister for Housing, Michael Sukkar MP said in September 2020 it was critical that “unnecessary barriers” to accessing credit were removed, enabling consumers to continue to spend and businesses to invest and create jobs.
The proposed changes including the removal of responsible lending obligations from the National Consumer Credit Protection Act 2009, increasing obligations on payday lending (“small amount credit contracts”) and consumer leases, aimed at protecting vulnerable borrowers.
The changes would allow lenders to rely on information provided by customers (borrowers), under a “borrower responsibility” principle, removing the requirement to ensure loans were suitable. They also propose to remove the ambiguity around the application of consumer lending laws to small business lending.
APRA would ensure banks (authorised DTIs) continue to comply with lending standards. Key elements of the lending standards would apply to non-ADIs.
Updating MPA on the progress of the reforms, Treasurer Frydenberg said the government would continue to work with the Parliament.
“The Morrison Government’s changes to this legislation will simplify Australia’s credit framework, ensuring consumers and small businesses can get timely access to credit as the economy continues to recover from the COVID crisis,” Frydenberg said.
“The reforms are intended to improve efficiency, reducing the time and cost associated with the provision of credit for consumers and small businesses. They also strengthen protections for higher risk products and vulnerable consumers using small amount credit contracts and consumer leases.”
FBAA managing director Peter White AM (pictured) said it was important to highlight that responsible lending obligations weren’t being dumped, as indicated by using the word “repeal, nor were they being inappropriately modified.
Referring to the review as “very appropriate”, White said the government was doing its best to support small businesses, which were particularly challenged through the COVID-19 pandemic.
He said small businesses were the backbone of employment in Australia, so there’s a need to ensure they’re supported through unforeseen times including the pandemic, bush fires and flooding.
Times change, and what was right in the past may not be the right solution now. White said small business lending provisions were “overtight” and needed to be more “fit for purpose”.
“As an example, (they needed to be) taking into the credit decision consideration forward contracts, and/or new contracts entered into, and not just the performance of the last two to three years, especially through COVID.”
Best interest duty applies to mortgage brokers providing products to consumers for personal, domestic, or household purposes. As residential mortgage brokers weren’t affected by amendments to responsible lending laws, White wouldn’t expect client interactions to be affected.
“The best interest duty is a duty that applies to the conduct and behaviours of the broker, [whereas] the responsible lending guidelines is principally the credit policies of the lender,” White said.
“From a broker’s point of view, it really doesn’t change anything, because responsible lending is about the credit rules.”
He said FBAA had worked closely with Treasury, with ASIC and APRA on the responsible lending changes, and had expressed concerned over splitting of responsible lending obligations between ADIs and non-ADIs across APRA and ASIC.
In this instance, the rules need to be the same, he said.
“The piece that FBAA didn’t like is they were splitting the obligations between APRA (governance over ADIs) and ASIC (governance over non-ADIS). We have seen many times ASIC over-reaches the law,” he said.
“My concern was, if you’ve got APRA, who says to all the banks, ‘here’s the responsible lending laws’, and ASIC goes to the non-banks and says, ‘here’s our version of the responsible lending laws’, ASIC, based on history, take it to another level and there’s an uneven playing field.
“We believe the industry and borrowers were much better placed for this to be under one/the same regulator so there was not opening for interpretations or variations of obligations. It also would mean compliance was far more transparent and simpler to meet.”