Bruce Baird (Cook, Liberal Party) Share this | Hansard source

On behalf of the Standing Committee on Economics, Finance and Public Administration, I present the committee’s report entitled Home loan lending: inquiry into home loan lending practices and the processes used to deal with people in financial difficulty, together with the minutes of proceedings.

Ordered that the report be made a parliamentary paper.

There have been significant changes to the practices in, and the structure of, the housing lending market over the past decade. A large number of new lenders have entered the market, generating intense competition with established lenders like banks and credit unions. At the same time, the use of traditional lending standards has declined among all lenders. Most are now willing to lend with little or no deposit and are permitting much higher debt servicing ratios.

The committee undertook this inquiry with a view to examining exactly how lending practices have changed and what effect the changes have had. The committee sought to examine the mechanisms in place to ensure borrowers are treated appropriately, with a particular focus on borrowers facing financial hardship. The committee received 27 submissions and held a roundtable public hearing with 30 key industry stakeholders. This format allowed the gathering of evidence within a short time frame.

The changes in the lending market have allowed more households to take on more debt. This has, of course, been supported by strong domestic and global economic conditions, which have markedly increased households’ ability to service debt. While some people have argued that the new lending practices have resulted in widespread irresponsible lending, the data does not support this. Loan arrears rates have increased in recent times but they remain low by international and historical standards. Data on housing repossessions has also shown an increase recently, but the data lacks detail and is thus an unreliable measure. The committee recommends that the Australian Bureau of Statistics begin collecting data in this area.

There are a range of reasons why a borrower may be unable to meet their mortgage commitments. They may be faced with a life event that adversely impacts upon their finances, such as job loss or relationship breakdown; there may be a lack of financial literacy; or they may have overburdened themselves. Most often it is not the lender’s fault but there are cases where it is. There are reportedly an increasing number of cases where lenders and/or brokers are engaging in predatory behaviour aimed at taking advantage of vulnerable borrowers. The regulatory framework for credit should offer consumers protection against inappropriate lending practices and should also provide guidance on lenders’ obligations to borrowers in financial hardship. Evidence to the inquiry suggested that the current arrangements do neither of these things as effectively as they could. As such, reform is needed.

The primary instrument for regulating credit is the Uniform Consumer Credit Code. The uniformity it brings to credit regulation is applauded; however, the code has a number of inadequacies which are not easily remedied because the state based code requires jurisdictional amendments. The current regulatory framework has very few controls on the conduct of mortgage brokers. The states and territories have been trying to coordinate a national licensing regime for brokers since 2002, but it is still not in place. The regulation of financial products is generally a Commonwealth responsibility, except in relation to credit. The committee believes this division is illogical and arbitrary and recommends that the Commonwealth assumes responsibility for credit regulation.

If credit were to be defined under the Corporations Act as a ‘financial product’ it would require providers of credit products and advice to hold an Australian Financial Services licence. Licensees are subject to rules about quality of advice and disclosure and are required to belong to an external dispute resolution scheme. EDR schemes appear to be an effective and low-cost mechanism for resolving consumer complaints, but the schemes’ jurisdictional limits could be increased to enable more complaints to be dealt with. The committee recommends that the Banking and Financial Services Ombudsman increase the limit on cases it can consider to $500,000 and that this amount is indexed annually. It also recommends that other schemes consider the appropriateness of their limits. The committee also examined the effects of the changed lending market from the perspective of the financial system and the macroeconomy. By and large, the developments to date have caused minimal concern.

Finally, I would like to thank all members of the committee for their cooperation, particularly the deputy chair, the member for Cunningham; I also thank the members of the secretariat—Andrew McGowan, Sharon Bryant, Stephen Boyd—for their outstanding work and professionalism. I commend their hard work, and I commend this report to the House.

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