Thursday, 25 February 2021
National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020; Second Reading
Recommendation 1.1 of the Hayne royal commission into banking and financial services reads:
Recommendation 1.1 – The NCCP Act
The NCCP Act should not be amended to alter the obligation to assess unsuitability.
The first recommendation of the Hayne royal commission into banking and financial services, which, remember, came about because of irresponsible credit practices and irresponsible lending by the banks, was that the National Consumer Credit Protection Act should not be amended to alter the obligation to assess unsuitability. And yet that's exactly what this government is doing. That's what this bill does; they're flying in the face of the first recommendation of the banking royal commission. Have they learnt nothing? What short memories they have!
This National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 scraps responsible lending obligations under the National Consumer Credit Protection Act. What are those responsible lending obligations? There are three of them. Firstly, the licensee must:
(a) make reasonable inquiries about the consumer's requirements and objectives …
That's completely reasonable, completely understandable and should be there. The second one is:
(b) make reasonable inquiries about the consumer's financial situation; …
That's what the bank or lending institution is required to do. Of course, that's entirely reasonable and entirely appropriate. You're not going to lend money to someone without making inquiries about their income and their expenditure, are you? It happened in the lead-up to the global financial crisis, and that's why the world ended up in a mess. The third one is that the licensee is required to:
(c) take reasonable steps to verify the consumer's financial situation; …
That includes both their income and their expenditure. Again, that's a very, very reasonable requirement for a bank or a lending institution, to ask about those who are applying for credit and whether or not they have the financial wherewithal to pay the loan back. Of course that's a reasonable obligation on a credit provider. And yet these are the obligations that this government wants to remove from our national consumer credit laws. It is unbelievable!
These obligations apply only to consumer credit contracts; they don't apply to commercial credit contracts. They've never applied to commercial credit contracts. So we're talking here only about the average wage earner—a mum and a dad trying to buy a new home, a young person trying to get into the housing market or someone going to get a loan to buy a new car. Of course the banks and the lending institutions should ask these reasonable questions about whether or not someone has the ability to pay that loan back and, indeed, what their income is. These are reasonable laws, yet this government wants to get rid of them.
In removing those responsible lending obligations for products other than small amount credit contracts and consumer leases, what this government is doing is potentially damaging Australia's economy into the future. I've asked myself: 'Why are the government doing this? Why are they getting rid of these reasonable laws, particularly in the wake of the Hayne royal commission, which recommended in its No. 1 recommendation that these laws remain?' Well, the Treasurer and the Assistant Treasurer, who introduced this bill, have said that the current regulation is damaging the supply of credit. Those were the Assistant Treasurer's words, and the Assistant Treasurer, in his second reading speech, said that 'flexibility for lenders' was required. Whenever the coalition talk about flexibility, it should raise alarm bells amongst Australian workers and Australian consumers. But, when they talk about flexibility for banks, it should raise even more alarm bells, because we saw what happened over the last decade when the big four banks and other massive lending institutions had flexibility in laws not only around providing credit but around pandering to people to get them to take on credit, particularly around credit cards and other loan instruments. So people should be very, very sceptical of the government when in the outline of this bill, when they present it to the parliament, they say that they are trying to present more flexibility for banks in Australia.
I want to go to some of the findings of the royal commission about this notion that credit regulation is damaging the supply of credit. The Treasury had something to say about this in their submission to the Hayne royal commission:
There is little evidence to suggest that the recent tightening in credit standards, including through APRA's prudential measures or the actions taken by ASIC in respect of RLOs—
responsible lending obligations—
has materially affected the overall availability of credit.
That is the view of Treasury. It's the view of the Treasurer's own department, submitted to the royal commission. The Assistant Treasurer's own department has said that the responsible lending laws have not harmed the availability of credit. Yet the Assistant Treasurer comes in here and completely contradicts his own department, the evidence that was presented before the royal commission and the findings of the royal commission to present this bill, which does the complete opposite and relaxes those responsible lending obligations. It goes completely against the Assistant Treasurer's own department and their advice.
It gets worse. Treasury goes on to say:
… there has likely been an improvement in the credit quality of marginal borrowers.
The Treasury have said to the royal commission, 'These laws are working and we want them to remain in place,' yet the Treasurer completely ignores his own department and completely ignores the royal commission and gets rid of these responsible lending laws through this bill.
The royal commissioner himself, Hayne, said in the conclusion to this section around the responsible lending laws in the report:
… if 'appropriately managed, ensuring the industry consistently meets the requirements of existing laws will likely enhance rather than detract from macroeconomic performance'.
There you've got it. It's actually going to be better for the Australian economy if we leave these laws in place. Yet this government is completely ignoring that advice and the advice of its own department and is getting rid of them. And it's getting rid of them despite the protest of consumer groups, who've also said that it's irresponsible to scrap these laws and that it would potentially lead to significant consumer harm.
These organisations include the Consumer Action Law Centre, the Financial Rights Legal Centre, Financial Counselling Australia, Choice, the Indigenous Consumer Assistance Network, and Redfern Legal Centre. A significant part of these organisations' work is providing assistance and legal advice in relation to consumer credit in Australia, particularly when it goes wrong for the consumer and particularly when people experience that disadvantage and end up in a difficult financial situation. These organisations have deep expertise in our credit laws based on lived experiences of the people they help. It's no surprise that they strongly oppose this bill. They say that the Morrison government's changes will result in harm to individuals, families and communities and set Australia up for household debt disaster in the wake of the COVID-19 crisis.
The chief executive of the Financial Rights Legal Centre, Karen Cox, said that her organisation 'continues to see the financial hardship legacy of irresponsible lending practices that pre-date the banking royal commission'. She said:
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. The last thing people need now is inappropriate and unaffordable credit.
Fiona Guthrie, the chief executive of Financial Counselling Australia, said that financial counsellors were shocked by what was being proposed. She said:
If these laws are scrapped, financial counsellors will see more people drowning in debt with all that entails: greater risks of suicide, more bankruptcies, more family violence and family breakdown, more homelessness and the negative flow on effects to people's mental and physical health.
That is the view of the people who deal with the ugly side of this every day. Yet this government ignores that. They ignore the advice of Treasury, they ignore the advice of the Hayne royal commission and they proceed with these laws.
Why were those responsible-lending laws put in place? They were put in place in the wake of the global financial crisis, where we saw banks and financial institutions across the world lending for basically anything, lending with very little evidence of incomes and expenditure. That, of course, led to asset price bubbles, particularly in housing. When the whole thing came crashing down, it wasn't the executives at the banks and the lending institutions who suffered. No, it was the workers and the people who had taken out those unsustainable loans, because the price of the assets against which they'd borrowed crashed, and the banks foreclosed on the assets because the value of the loan was greater than the value of the asset, and people were left without housing.
That's what those consumer groups are talking about in relation to these laws being removed once again. In the Australian context, that was pre-dated by the wealth scandals that occurred in our banks, in our financial institutions—the pushing of financial products, particularly credit cards, and other unsuitable loan products onto consumers because of the incentives that were given within these organisations, through bonuses and other pay advances, to get people to take on credit that they couldn't sustain.
Government had to act; we were forced to act. Government doesn't just wake up and say, 'Hey, let's regulate the banking industry!' It was well over a decade of pain and suffering—literally hundreds of thousands of Australians losing billions of dollars—that forced government to act. And Labor forced the government into a royal commission that they had voted against 26 times. They never wanted it. They didn't want to see a spotlight shone on what was going on with their mates in the banking sector. The government voted against it 26 times. These laws were put in place to ensure that that can't happen again in Australia, and this government wants to get rid of those responsible lending laws.
I make this prediction: in years to come, when we are looking back on the next financial disaster in this country and saying: 'How did we allow this to happen? How did we allow the housing crash to occur? How did we allow millions of Australians to lose their homes and lose their incomes?', we can point to this point in time when this bill went through. It will be on this government to explain to those millions of Australians who will be suffering at that point in the future why they did this to them, why they allowed this to occur in this parliament and another global financial crisis style recession to ensue for a lot of people to suffer through. It will be on this government to explain to people why they allowed that to occur.
That is why Labor is opposed to this reform. The government is taking away the regulation that was put in place after this parliament was forced to act by the Australian people, by workers and consumers, because they'd had a gutful of the rip-offs and the scandals in this industry. This government is now turning its back on those people who suffered, and, again, marching down the path of deregulating this industry and ensuring that in the future people will be vulnerable and potentially subject to credit that they can't afford. When the whole thing comes crashing down it will once again be up to the Labor Party to try to restore some decent regulation and some reasonableness to this industry.