Thursday, 25 February 2021
National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020; Second Reading
I rise to speak on the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020. Unlike some others who go and talk to groups, I have actually been out in my community and talked to actual businesses, and they are telling me something completely different—that they are struggling to get finances to expand, to open new businesses. So this is a welcome bill, in their view.
For many of us, borrowing money from a bank or some other lender has become a simple fact of life. If you want to buy a house, chances are that at one time or another you've spoken to a bank representative or a broker to find out how much credit you can borrow and what your repayments would be. If you've ever operated a business, there's a strong chance you've had to borrow money, particularly to manage the startup costs. The amount you can borrow is based on many factors such as your family's income, existing debts and day-to-day expenses, like putting food on the table, sending the kids to school and keeping the lights on. Let's not forget there's always a certain amount of risk a person takes on when entering a contract to borrow money, and there's also risk to the lender. These are the things that happen in our lives, things unforeseen, that can change our circumstances.
Take the COVID-19 pandemic, for example. When it struck in early 2020, many businesses had their bottom lines wiped out overnight. Thousands of hardworking people across the country lost their jobs through no fault of their own. Businesses were still expected to pay their rents to their landlords, and the landlords relied on that income to pay back their loans. That's fair enough. The government introduced measures to minimise this impact, and now, around 12 months since the pandemic first hit, the economy is back on track. There are some sectors and many people who are still doing it tough, but as a nation we are headed in the right direction. The COVID vaccines are now being rolled out and the nation is bouncing back from the devastating impacts of the pandemic. In fact, we are beating market expectations. Last month, 29,000 new jobs were created. The unemployment rate is now at 6.4 per cent. It's the first time since April last year that the unemployment rate has been this low.
Back in the good old days of 2019, no-one could have predicted what 2020 would bring. That's why it's more important than ever to find the right balance between having an efficient flow of credit and ensuring there are adequate safeguards in place. I believe the proposed amendment we are debating here today achieves this balance.
I can remember starting a new business in May 2007, just before the GFC, and going to the bank, backing myself and putting our family home up as security to start a new venture. Since then, I have had the pleasure, along with my business partner, of purchasing another business. Had I been refused that business loan due to lending laws that were too tough, I would not have been able to employ around 15 people, contribute millions of dollars in GST and thousands of dollars in income tax; rent two commercial premises, which creates income for the owners of those buildings; and purchase millions of dollars in goods, which keeps truck drivers, warehouse people, bookkeepers and sales staff in jobs—the list goes on and on. All of these benefits to our economy would not have happened had we not got our initial business loan.
So these changes we have put forward will become a vital part of our ongoing economic comeback. As I have already stated, credit is a fact of life for many of us. Credit can be used to establish or expand a business and create new jobs. Credit can be used to build a house, helping to keep tradies and builders in jobs. Credit can be used to buy other household items, like a car, computer, dishwasher or whatever it might be. These purchases support our economy and keep people in jobs.
The amendment that we are proposing will make existing responsible lending obligations apply only to high-cost credit products or small amount credit contracts and consumer leases. The reforms will remove unnecessary barriers to credit while maintaining important consumer protections for those who need them. It's our job as a government to remove barriers, not put them up. It's our job to make it easier to do business in this country, not harder. And these reforms will do that. The existing obligations have brought about greater risk aversion in credit assessments than originally intended. They've imposed burdensome regulations on consumers and lenders, resulting in delayed credit approvals and increasing borrowing costs. They've also acted as a barrier to borrowers wanting to seek out new credit, refinance or get a better deal. These obligations have led to a one-size-fits-all approach to credit assessments which is overly burdensome for both borrowers and lenders. They are no longer fit for purpose and they risk slowing Australia's economic recovery from the pandemic.
The changes we are proposing will reduce the time and cost of credit assessments for consumers and businesses, cut red tape for consumers seeking a credit product, improve competition by making it easier to switch lenders and enhance access to credit for small businesses. It's important to note, though, that improved lending flexibility will not diminish the consumer protections in place. In fact, for some products these protections will be enhanced.
The amendment seeks to retain responsible lending obligations for small amount credit contracts and consumer leases. These are high-cost forms of borrowing and are more typically accessed by some of Australia's most vulnerable consumers. For example, a loan of up to $2,000 with a short-term contract is considered to be a small amount credit contract. A consumer lease lets you rent an item like a laptop, TV or fridge for a set amount of time, after which either you must return the product or you may have an option to buy it outright. While these products can be useful for people to access as an emergency source of funding, repeat borrowing can pose significant issues for a person on a low income. It can lead to a spiral of debt, with repayments consuming a large portion of that person's income. The repayments can become crippling.
Let's be honest about this: crippling debt can ruin lives. It can destroy marriages and families, and it can even lead to suicide. This is something of particular concern to me, as my electorate of Longman contains some true Aussie battler suburbs. The last thing I want is to see people in my electorate who are already doing it tough get into further financial trouble by borrowing money they should never have had access to in the first place. That's why the proposal here today seeks not only to retain responsible lending obligations for those types of high-cost products but to introduce even more protections.
These reforms will: introduce a cap on the costs a lessor can charge; introduce new protected earnings amounts for these products; prohibit providers of these products from making unsolicited invitations to current and former customers; and prohibit door-to-door selling of consumer leases. The government supports the principle that consumers should only apply for a consumer lease when they proactively choose to do so. The new protected earnings amounts will limit the proportion of income consumers can devote to these products.
These reforms are designed to limit consumer harm while maintaining access to these forms of borrowing. Responsible lending obligations will be retained on these products regardless of whether they are provided by a bank or some other lender. For other credit products banks will continue to be regulated by the Australian Prudential Regulation Authority, APRA. The standard requires banks to implement a credit risk management framework. This includes having prudent policies and processes to manage credit risk and maintain sound credit assessment and approval criteria to appropriately assess a borrower's credit risk.
Banks will continue to be subject to a broader range of prudential regulations administered by APRA which reflect their importance to the financial system as holders of Australians' deposits. Tough new lending standards for non-bank lenders will be introduced that will maintain consumer protections while reducing the compliance burden for both lenders and borrowers. They require lenders to have a sound credit assessment and approval processes to ensure consumers are able to meet their obligations without substantial hardship.
These standards are adopted from APRA's prudential standards to ensure consistency between bank and non-bank lenders. They also introduce a borrower responsibility principle, enabling lenders to rely on information provided by consumers unless there are reasonable grounds to believe that the information is unreliable. This process addresses the current practice of 'lender beware' and addresses the excessive risk aversion which has progressively entered the system, restricting the flow of credit.
The main new change here is that, unlike responsible lending obligations, the new lending standards do not impose individual conduct level obligations. This enables lenders to adopt more risk based lending that is attuned to the needs and circumstances of the borrower and credit product. It is a move away from the onerous tick-a-box verification practices of the past. People will still have access to the Australian Financial Complaints Authority when they have a financial dispute with their lender. These new lending standards for non-bank lenders will be enforced by ASIC.
It's important to note that the new standards will not apply to credit which is in part for a small-business purpose. In essence, this will make permanent the temporary small-business loan measure that was extended following the start of the pandemic. Small-business lending was never intended to be captured by the credit act, but recent interpretation of the responsible lending obligations has meant some small businesses have struggled to access credit. This has been particularly evident for primary producers, where it is difficult to distinguish between home and business. The new lending standards avoid this confusion. They will give small-business customers the confidence to approach lenders for business purposes knowing that the process to obtain approval will be less complex and intrusive. In practice this means that once a lender identifies that part of the credit is for a small-business purpose it will switch off the obligations contained in the non-ADI standard. However, a safeguard will be included to ensure that the small-business purpose is not minor or incidental to the overall purpose of the credit. This will address the risk of consumers inappropriately nominating a small-business purpose to avoid the lending obligations.
These reforms retain consumer protections. Lenders must put in place systems, policies and processes that comply with the standard, to ensure they assess a borrower's capacity to repay the credit being extended without substantial hardship. A lender will be in breach of the law if they lend without having in place systems, policies and processes that comply with the law. Lenders that repeatedly fail to comply with the processes or practices they have in place for credit assessment will also be in breach of the new lending standards. Both contraventions attract significant penalties. Borrowers will retain access to the Australian Financial Complaints Authority for dispute resolution and restitution. Protections are being increased among credit assistance providers, with the bill extending the best-interests obligations to other credit assistance providers. This will ensure credit assistance providers act in consumers' best interests and place consumers' interests before their own when providing credit assistance. These obligations will begin six months after royal assent, to allow industry time to prepare for the new requirements.
Despite what some would have us believe, these reforms will not lead to irresponsible lending. The new standards for non-bank lenders will ensure lenders have sound credit-assessment-and-approval processes to assess a consumer's capacity to repay debt without substantial hardship. The new standards align with the APRA standards that apply to the banks. They will ensure that, regardless of lender, credit continues to be extended in a manner attuned to the needs of the consumer and the credit product. Additionally, the government's reforms increase consumer protections among credit assistance providers. This will ensure that providers assisting consumers to access credit act in consumers' best interests and place consumers' interests before their own. It is vital that credit continues to flow in the Australian economy, with the appropriate consumer protections in place. It is my belief that this amendment achieves that outcome.