Australian Consumer Advocates United Against Responsible Lending Changes

November 26, 2020 Updated: November 26, 2020

Over 200 organisations and individuals across Australia have signed an open letter to federal parliamentarians, urging them to block plans to wind back responsible lending laws, in a bid to shield consumers from aggressive lending by financial institutions.

Signatories to the letter, launched on Nov. 24, include leading consumer advocates, charities, community, legal and family violence groups such as ACTU, CHOICE, ACOSS, Anglicare, as well as high-profile law professors, financial counsellors and witnesses of banking royal commission.

The open letter warns that the changes could lead to a debt emergency that potentially could slow down the country’s economic recovery from the COVID-19 crisis.

“This policy will hurt people and hinder our economic recovery, ” the letter states. ” These changes will take away people’s rights and give more power to the banks.”

The open letter amplifies ever-increasing voices against the proposed changes announced in September, following a Greens motion opposing the initiative on Nov. 9, which has garnered the support from a majority of senators.

“The motion before the Senate highlighted that the government’s proposed changes to consumer credit laws are inconsistent with the first recommendation of the Royal Commission,” Greens Economic Justice spokesperson Senator Nick McKim said.

“The government accepted this recommendation when it was handed down last year. Now they are abandoning it,” McKim said.

The first of Commissioner Kenneth Hayne’s 76 recommendations was for the Government to leave the National Consumer Credit Act alone.

He said it “should not be amended” when it comes to a lender’s obligation to assess if a customer is suitable for a loan, credit card or overdraft.

In September Treasurer Josh Frydenberg announced the proposed changes to the National Consumer Credit Protection Act 2009, which is expected to come into effect in March 2021 if passed by Parliament.

One of the major changes is replacing the current practice of ‘lender beware’ with a ‘borrower responsibility’ principle.

This means putting the onus on consumers—instead of lenders—to work out what loans they can service instead of giving that responsibility to the lender.

The changes are expected to reduce the verification procedures and shorten the timeframe to secure loans, which will ease access to credit and lift the economy from the pandemic-induced recession.

Despite Treasure’s argument that the reforms will facilitate economic recovery and will not weaken consumer protections, the letter challenges both the justification for easing credit and the sufficiency for consumer protections.

“We are experiencing our first recession in nearly 30 years, and high levels of household debt will slow down the national economic recovery,” the letter says.“Banks and other lenders should not be given the green light by the government to burden people with even more debt and trap households in a cycle of persistent debt.”

The letter also highlights the consequences of predatory lending, quoting instances where banks gave aged pensioners 30-year mortgages, accepted fraudulent loan documents, and paid thousands in kickbacks to loan ‘introducers’.

“When people are given loans or credit cards they can’t afford, the human cost is high,” the letter asserts. “If this law is passed, people will be left to pick up the pieces for years to come while banks and other lenders are given a blank cheque to profit from aggressive lending.”

According to CHOICE,  most Australians also expect financial institutions to check if credit is unaffordable to them.

A national survey,  conducted on Nov 11-16 among 1,014 people as part of the Dynata’s weekly “Omnipulse” omnibus, indicates that 79 percent of respondents think that banks should be required to always check a customer’s ability to repay before offering a mortgage (only four percent disagree).