- The Federal Treasurer has announced plans to soften the criteria for accessing a loan, in a bid to free-up credit and stimulate the economy
- Banks have raised concerns lending obligations, strengthened in the wake of the Banking Royal Commission, were overly restrictive
- However, consumer groups argue the strict criteria were necessary to protect Australians from predatory lending and overspending
- Under the proposed changes, borrowers no longer have to hand over as much personal information to banks to assess their suitability for a loan
- The Government will now consult with the industry and other stakeholders, before drafting new legislation
The Federal Treasurer has announced sweeping changes to lending which will make it easier for Australians to access a loan, but the proposal hasn’t been welcomed by all.
Treasurer Josh Frydenberg wants to remove some of the obligations lenders have when assessing a person’s suitability for a home loan or personal loan.
He argues the move is needed as it will free-up credit and stimulate the economy, which has been sorely affected by the COVID-19 pandemic.
“Credit is the lifeblood of the Australian economy, with billions of dollars in new credit extended to households and businesses in Australia each month,” he said,
“Now more than ever, it is critical that unnecessary barriers to accessing credit are removed so that consumers can continue to spend and businesses can invest and create jobs,” he added.
The news has been well received by those within the building and banking sector, with banks, in particular, arguing that lending criteria has become too strict and complicated.
Banking stocks have all shot up into the green following today’s announcement, with CBA trading up 3.07 per cent, ANZ up 5.22 per cent, Westpac up 6.57 per cent and NAB up 6.17 per cent.
The Australian Banking Association has also welcomed the news, stating it was excited to work with the Morrison Government to shape the planned legislation.
“Australian banks understand their role in supporting customers and rebuilding the economy. Ensuring the flow of credit to families and businesses, with the right customer protections, is paramount,” ABA CEO Anna Bligh said.
“Banks look forward to working with the Government to ensure the legislation works for both customers and the broader economy,” she added.
Consumer group reaction
However, concerns have already been raised from a number of consumer groups who argue these new changes undermine the regulations put in place after the damning Banking Royal Commission.
The first recommendation from the Hayne commission was “the NCCP Act should not be amended to alter the obligation to assess unsuitability.”
The Treasurer agreed to accept all of the recommendations at the time, but today’s announcement directly contradicts that sentiment as it will remove responsible lending obligations from the Act.
The Consumer Action Law Centre, Choice, Financial Counselling Australia and the Financial Rights Legal Centre have all blasted the move, warning it will lead to the same malpractice heard in the Banking Royal Commission.
“The problem people are having right now is too much debt and not enough income. The Government’s solution is to take on more debt with fewer protections. Unsustainable debt hurts real people and is a short-sighted fix for a flailing economy,” Financial Rights CEO Karen Cox said.
“The Commonwealth Bank recently said that the flow of credit is above pre-COVID levels and that lending is growing at a strong pace. And none of the big banks opposed the responsible lending laws at the recent House of Economics committee hearings,” Consumer Action CEO Gerard Brody argued.
“Leaving people with more debt than they can afford is no way out of an economic crisis. Pushing too much credit that people can’t afford to repay creates hardship, stress, anxiety for individuals and families,” he added.
RBA weighs in
The Treasurer has shrugged off the concerns, instead of pointing to recent commentary made by Reserve Bank of Australia Governor Phillip Lowe who argued banks shouldn’t primarily be blamed for bad loans.
“The pendulum has probably swung a bit too far to blaming the bank if a loan goes bad because the bank didn’t understand the customer. If it had done proper due diligence — this is the mindset of some — the bank would never have made the loan,” he said.
“So some of the banks have had this mindset, ‘Well we can’t make loans that go bad,” he added.
Regardless of the mixed reaction, Josh Frydenberg will push ahead with his planned lending changes by consulting with industry on crafting the necessary legislation.