15 March 2021
Statement on the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020
Today, I voted against the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020. This Bill will rollback of responsible lending obligations for consumers and it will only apply for small amount credit contract equivalent loans by Authorised Deposit-taking Institutions (ADIs) and consumer leases. In other words, responsible lending will no longer apply to mortgages and personal loans.
I voted against the Bill because:
- It goes against the first recommendation of the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
- The pretext for this Bill is economic recovery, however, the changes are permanent.
- A second justification of the Bill is that credit is not flowing quickly enough to the economy. However, there is little evidence that there is insufficient credit or that it is not flowing quickly enough.
- The Bill creates confusion for regulators with a disruption to the “two peaks” model between ASIC and APRA.
1. Hayne Royal Commission Recommendations
This Bill goes against Recommendation 1.1 of the Hayne Royal Commission. The recommendation states that: The National Consumer Credit Protection (NCCP) Act should not be amended to alter the obligation to assess unsuitability.
It alters the responsible lending obligations under the NCCP Act so that they will only apply to small credit loans. The majority of those who will be impacted by these changes are consumers, individuals and families. Evidence from legal aid, consumer advocacy and financial counselling services demonstrates that the current protections are effective and necessary.
The interim report of the royal commission found that $350 million in compensation had been paid or agreed to be paid to 600,000 consumers between 2010 and 2018 where it was agreed that institutions breached the existing laws.
This view is not held by the CEO of the Australian Banking Association said “Banks know from decades of experience that Australians are reliable and responsible borrowers. They adjust their lifestyle to repay their loans, and when things go wrong it is rarely, if ever, due to spending habits but more to major life events that impact income, such as job loss, illness or divorce. That's why this change makes sense.” However, looking at the motivations for that claim in the context of their constituent bodies aiming to reduce compliance costs, the banks have a vested interest in pushing that compliance cost onto consumers.
The banks have the expertise in this field, they should have a say in whether a consumer is credit worthy or not and place suitable limits on borrowing capacity.
2. The changes are permanent
The Government’s justification for these changes is that they are required for the economic recovery from the COVID-19 recession. However, the changes are permanent, not temporary.
The Law Council of Australia took issue with this point. They said “The permanent changes sought in the bill cannot be warranted on the basis of being adjustments to respond to the recent exceptional market conditions that have been experienced as a result of the COVID-19 economic crisis”
Moreover, the temporary provisions to enable free flow of credit to small businesses are already in place through existing Government stimulus measures. We do not need this legislation to facilitate economic recovery. It is disingenuous to indicate that these laws are a response to COVID-19.
3. There is no issue getting credit
The data does not support the argument that this Bill is addressing the needs of the recovery from the recession. The data does not show that there is a lack of credit in the economy at present. House prices are rising at their fastest rate in the last 17 years. Fears of a housing bubble are frequently voiced by economists and others in the media. Moreover, the share market has almost recovered to pre-COVID-19 levels.
Treasury officials stated that “Credit to housing is growing very strongly, personal lending products are shrinking rapidly and credit to business is relatively stagnant. So, while you have credit growing overall, the distribution of that credit through the economy is pretty varied.” It is important to note that responsible lending obligations in this legislation relate only to consumers and do not relate to business loans.
The Australian Banking Association CEO, Ms Anna Bligh stated that, while supporting the legislation: “It is not the view or the assertion of the ABA or its member banks that current provisions are choking the supply of credit……macrodata tells us that, yes, credit is getting into the economy.”
Treasury also stated that the Bill “is not necessarily about the overall supply of credit.” Rather, it is about speeding up the time for approval of loans. Many proponents of the legislation remaining unchanged argue that consideration of loans and completion of required checks and balances are necessary to ensure the integrity of the system. I support this view and encourage lenders to seek opportunities for efficiencies in their approval processes rather than removing the obligation.
4. Regulatory confusion
This Bill will also create confusion for the twin peaks regulatory model. The clarity of the model with ASIC regulating financial conduct and APRA regulating prudential elements including the banks and other lenders, has been a feature of the strength of banking regulation in Australia and one of the reasons for our ability to weather the GFC relatively unscathed.
The retention of this model was explicitly recommended by the Final Report of the Banking Royal Commission. ASIC and APRA themselves have said it is not clear how the new regime will work.
The Government claims that this Bill will simplify regulation and compliance, however, the Law Council disagrees: “Respectfully, the Law Council submits that this does not represent a simplification of RLOs, but rather makes enforcement of the standards complex and difficult. It would also make it highly difficult for a consumer to assess whether or not their own lender has breached the non-ADI standards.”
I urge the Government to reconsider this portion of the Bill, clarify the function of the regulatory bodies and preserve the twin peaks model that has served us well to date.
I do not support this amendment, there is a lack of evidence to support the need a permanent change to this legislation. Credit is flowing and the economy is already in recovery. There are many more important pieces of legislation that require amendment and will actually solve existing problems, rather than create new ones.