23,000 Aussies call for responsible lending laws to be strengthened

People lined up in the street, protesting the scraping of responsible lending laws after the banking royal commission.

Safe lending laws are still weighing heavily on the minds of many Australians after the Senate Economics Committee hosted hearings in Canberra on the subject on Friday.

In the lead-up to this and the proposed changes to responsible lending practices – which the banking royal commission recommended stay in place – more than 23,000 individuals have signed a letter to Australian parliamentarians demanding the protections be maintained.

The request, hosted by consumer advocacy group CHOICE, is also backed by over 125 charities, unions, academics and financial counsellors. 

What are responsible lending laws?

These are checks and processes banks and lenders have to abide by when offering loans to consumers. The aim is to only lend to those who are in a position to repay debt, rather than see repayments missed and interest and fees accrue, leaving the borrower facing greater financial hardship.

These laws were introduced federally in 2009 under the National Consumer Credit Protection (NCCP) Act in response to shoddy lending practices revealed during the global financial crisis (GFC).

What are the royal commission recommendations around responsible lending?

When the banking royal commission concluded more than two years ago, it was recommended the NCCP Act not be amended in regards to lenders’ obligations in assessing the suitability of borrowers applying for credit.

What is the government proposing for these laws?

On 25 September, 2020, treasurer Josh Frydenberg announced the government would be stripping back major elements of the NCCP act. This focused on transferring the onnus from lenders to borrowers to assess their suitability to take on debt, except in the case of smaller creditors and debt management firms where obligations would be reinforced.

The scrapping of these laws was introduced as part of a COVID-19 economic recovery plan. Frydenberg said the changes would “make it easier for the majority of Australians and small businesses to access credit, reduce red tape, improve competition, and ensure that the strongest consumer protections are targeted at the most vulnerable Australians.”

Additionally, the body in charge of overseeing this would shift from the Australian Securities and Investment Commission (ASIC) to the Australian Prudential Regulation Authority (APRA) – a move which some say will position the regulatory focus as one around bank risk management over consumer protection.

Many disagree with the principles behind the move. In a statement connected to CHOICE’s petition, chief executive of Financial Rights Legal Centre Karen Cox said her organisation continues to see the financial hardship legacy of irresponsible lending practices that predate the banking royal commission.

“Our government wants free-flowing credit to reign at a time when unprecedented numbers of

Australians have had to ask for loan deferrals amidst COVID-19. It simply defies logic,” she said.

“The last thing people need now is inappropriate and unaffordable credit.”

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