- Vulnerable borrowers will be harmed if Australia axes its responsible lending laws, consumer advocates say.
- Speaking at a Senate committee hearing on Friday, CHOICE CEO Alan Kirkland said the “consequences will flow to individuals.”
- Treasurer Josh Frydenberg announced plans to loosen credit restrictions last year, saying unrestrained borrowing would bolster the Australian economy.
- Visit Business Insider Australia’s homepage for more stories.
With time running out before the relaxation of responsible lending laws, consumer activists have again implored the Federal Government to reconsider amendments they believe will drastically harm vulnerable borrowers and stoke Australia’s mounting levels of household debt.
Speaking at a Senate committee hearing on Friday, CHOICE CEO Alan Kirkland said he was “deeply concerned about the consequences” of unwinding responsible lending provisions in March.
“The consequences will flow to individuals,” Kirkland said, saying that lenders will primarily benefit from any changes to the legislation.
“It’s consumers that will absolutely be the losers if this bill goes through,” he added.
In September, Treasurer Josh Frydenberg announced the Federal Government would water down credit restrictions recommended by the banking royal commission, with the goal of stimulating the flagging Australian economy.
Frydenberg said Australian lenders have been subject to an “overly prescriptive, complex, costly, one-size-fits-all regime,” which hampered the nation’s economic recovery from coronavirus lockdowns.
Opponents fear that under the Government’s proposed tweaks, borrowers would be the ones responsible for providing accurate financial information, making it easier for lenders to process risky credit card and mortgage applications.
Kirkland said the reforms stood to harm vulnerable borrowers, who may not have the capacity to pay back the debts they incur.
“This is one of the largest financial services reforms that I’ve seen, the one that will create the greatest risk to consumers,” he said.
“And it will translate to real loss of money by consumers.”
Record low interest rates, and the stunning rise in the number of home loan approvals towards the end of 2020, proved that reversing responsible lending laws was unnecessary, Kirkland said.
Financial Rights Legal Centre coordinator Karen Cox told the hearing her service was aware of borrowers who experienced extreme financial distress towards the end of 2020 due to loans they couldn’t service.
Irresponsible lending is “often the cause of relationship and family breakdown, the loss of productivity, physical illness, and even suicide,” Cox said.
“In the short term, the banks are going to be the winners if we remove these rights,” she added.
The committee also heard calls to bolster the regulatory framework which shapes lending in Australia.
When pressed by Liberal Senator Andrew Bragg over the powers of the Australian Financial Complaints Authority (AFCA), which allows dispute resolution between individuals and financial institutions, Cox said it still required strong legislation underpinning the tenets of responsible lending.
“AFCA is not a law enforcement agency,” Kirkland told the committee.
Today’s hearing comes a day after Australia’s banking sector revealed its plan to handle borrowers holding a cumulative $28.7 billion in debt as loan deferrals come to an end.
The committee is slated to hold its final public hearing next Friday.
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