Thursday, 25 February 2021
National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020; Second Reading
I've heard for some months, in the lead-up to this debate, how bad this bill was. I've been written to by my local community organisations—South East Community Links and Casey North Community Information and Support Services. Financial counsellors have written to us. CHOICE Australia has been all over the media for months. But I have to say, having now spent a bit of time over the last couple of days looking at the detail, I'm shocked that the government would introduce a piece of legislation this bad. It is truly appalling for Australian consumers.
This bill, the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020, scraps entirely the responsible lending laws introduced over a decade ago, after the global financial crisis, which protect Australian consumers from predatory lending. While the government were dragged kicking and screaming into calling the banking royal commission, they at least said afterwards, 'Well, we accept the recommendations.' This bill breaks recommendation 1 of the royal commission's report. The royal commission into banking said, 'Do not amend the responsible lending laws.' They do not need to be amended. They're there for good reason. They provide stability in the financial system and protection for consumers. The government have effectively broken their promise in trying to scrap these laws.
It's instructive to look at who wants this bill. It's not a long list. The big banks want the bill, the finance industry wants the bill and the Australian Banking Association wants the bill. That's about it. Why? So they can lend more money without checks and balances. It's that simple. I will give a brief summary of what the laws do. All they do is ask the banks to do a bit of work and check documents properly, and they put a responsibility on the banks to do so. This is to protect consumers, most especially vulnerable consumers, of whom there are thousands in my electorate—and I'll get to that. They put the responsibility on the lenders to meet the standards—to verify documents and to understand who they're lending to. That's it. Why is the government doing it? Because the big banks want them to. The banks want to lend people more money; that's it. The government can't say that, though, can they, because it wouldn't sound very good. They don't want to be caught doing what the big banks want them to do, so they're pretending it's because of COVID. Just like with the wage cuts that we debated earlier this week, they're pretending, 'Because of COVID we've got to do these awful things.' They say there's a consumer credit squeeze that's threatening to derail the recovery. Apparently, according to the government, Australians can't get loans; they can't get credit.
The only problem is that that's patent nonsense. Just stop for a minute and think about the macro picture, the context that this sits in. Under the Liberals, Australian household debt as a share of GDP in this country, as of last year, was 119.4 per cent. The 2020 assessment of our global position showed that that's the second-highest of 41 countries in the world. Households in Australia are already bearing the second-highest percentage of debt of 41 countries, as assessed by the Bank for International Settlements. That's the context in which this bill comes trying to get households to borrow even more money, whether they can afford it or not.
Right now, in the real economy in Australia, lending's up by 10 per cent. Auction clearance rates are pushing north of 90 per cent in Sydney and have skyrocketed back in Melbourne. House prices are booming. Consumer credit has never been easier to get. The government's claim that we have a credit squeeze just doesn't add up. The statements and data from UBS bank and some others—members of the Banking Association and other industry associations—show limited to no evidence of any actual problem.
That's who wants it: the banks, the finance industry and the Banking Association. When you have a look at the range of people and organisations that have come out and said, 'Do not do this, government and parliament; do not pass this bill,' aside from the banks there's pretty much no-one who supports it. CHOICE, the peak consumer organisation, are strongly opposed. They're worried that the relaxation of lending standards will let lenders off the hook and allow them to make more loans that are unsuitable for vulnerable borrowers.
Then there are the consumer groups. I said earlier that my electorate is lucky to be served by a number of wonderful local organisations—some of them with funding from the federal government, ironically. The government don't listen to the people they fund, who do this day in, day out: the financial counsellors who sit there and help the most vulnerable in society, who've got themselves into all sorts of messes, sometimes through bad choices and sometimes through life circumstances and sheer bad luck. Financial Counselling Australia have sent around a survey, and it's instructive just to have a look at this survey. It's been sent to all members. I haven't heard any of the government members even acknowledge these concerns. It's all tickety-boo! There's no problem! This is going to be terrific! Government speaker after government speaker is saying this. This is pretty much a guarantee they're giving that no-one's going to get themselves into trouble. What nonsense!
The financial counsellors are the people who sit there at the coalface talking to Australians with financial difficulties. Ninety-seven per cent of financial counsellors said the responsible lending laws should remain—97 per cent. Ninety-four per cent of financial counsellors either strongly agreed or agreed that responsible lending laws are an important part of consumer protection. Just about every one of them—over 90 per cent—uses these responsible lending laws every day in communities across Australia—regional areas and city areas.
Financial problems are not confined to disadvantaged areas, but they are concentrated in them, including my electorate, which on the statistics is one of the most socioeconomically disadvantaged places in the country. There are a lot of people in temporary work, casual work, already suffering from the government's wage cuts, cuts to penalty cuts, casualised work and insecure work. Wages in this country since this government was elected have fallen in real terms. It's a shocking indictment on its so-called great economic management. Real wages have fallen. We're fifth last in the OECD for wage growth, out of 37 countries. This is the context in which these laws to allow people to borrow more money come: flat wages growth, casualised work and insecure work. It's a recipe for disaster. It is truly life-destroying when people get themselves into serious financial difficulties. For a lot of people in my electorate, 20 bucks is a lot of money. That's the extent to which people budget: down to their last 20 bucks.
Ninety-two per cent of financial counsellors agreed that, if the laws are repealed, they can expect to see many more clients with unaffordable debt. The majority of financial counsellors, 71 per cent, agreed that, if the laws are repealed, this will actually hinder the economic recovery, because once people get themselves into financial trouble they don't spend in the real economy; they spend every dollar of their income and everything they can scrape together servicing unaffordable debt.
Irresponsible lending, of course, still occurs despite these laws. It's these laws which enable financial counsellors to actually argue the toss and get a go for people who've been treated appallingly by banks and financial institutions. I'll quote from a letter from Susan Magee, the CEO of the Casey North Community Information & Support Service: 'Our financial counselling team are regularly assisting clients who are overcommitted financially and experiencing severe financial and emotional distress as a result. Any reversal of these laws will further impact on workable outcomes for our clients and potentially leave them in a lifetime of debt, with the risk of losing assets including the family home or bankruptcy. The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry quite clearly demonstrated the need to retain these laws.'
Both of the local organisations have sent me case studies, all members have been sent case studies, of real-world impacts that happen to people right across Australia. Melissa, a 55-year-old woman in my electorate, fell prey to a scammer who preyed on lonely and vulnerable women living alone. She ended up with $120,000 worth of debt. This had been financed over 12 months by the bank—more personal loans; more mortgage advances; repeated increases to her credit card limit—all the signs were there—with no checks whatsoever made by the bank. A financial counsellor helped her make an ombudsman complaint, and they discovered there was a breach of the responsible lending laws. It saved her house. She was 55 years old; she had eight more years of working. If these laws were not there, Melissa would have lost her house and retired into utter poverty.
John's a guy in my electorate who's close to homelessness. He's a jobseeker. He's living from fortnightly JobSeeker payment to fortnightly JobSeeker payment. He went to his bank. He said: 'I need a $1,000 credit card. I need that to help manage my cash flow.' The bank said, 'No, you can only have $5,000.' He said: 'I don't want $5,000. I want $1,000.' They said, 'Don't worry about it; you can just spend the $1,000.' Of course, with the pressures of life, within six to 12 months John's drowning in debt. Five thousand dollars might not sound like a lot of money to people in this place, but it is a lot of money to people like John, trying to exist from pay cheque to pay cheque. He's already close to homelessness. This was resolved. They wiped most of the debt and left it at a level that he could pay off. It was only resolved due to the responsible lending laws.
I have another example. A person whose only income is from the disability support pension was given a loan for a car where the payments left them without money for food or utilities. If these laws are scrapped, where's the protection for ordinary Australians? I have the most multicultural council area in the whole of Australia. They'll be particularly harsh for culturally and linguistically diverse people whose backgrounds have languages other than English as their primary language. I have heard of gamblers offered multiple $50,000 home loans within 12 months of each other with an unproven capacity to pay. A 72-year-old client was given a 30-year home loan. It's these laws which protect Australians from this kind of predatory lending, and the government wants to scrap them.
It's also instructive, when thinking about these kinds of proposals, to look at what the experts say. People who actually reflect on good regulation and credit regulation, and whose job, day-in day-out, it is to look at the balance between credit and consumer protection. The academic criticism is clear. They say that relaxed consumer lending standards may lead to financial instability in the financial system, or a debt crisis when interest rates rise. The peak irony for this debate, though, is the Commonwealth Treasury's submission to the royal commission into banks. This is not what the government might call a 'do-gooder organisation', worried about vulnerable people. It's not financial counsellors. It's not Labor MPs sticking up for consumers. It's the Commonwealth Treasury's own submission, made less than three years ago, made in 2018, to the government's own royal commission. That submission noted that the responsible lending laws enhanced, rather than detracted, from macroeconomic outcomes.
I'll just read a few quotes from the other experts. Eliza Wu, who is an associate professor of finance at The University of Sydney, said these reforms could 'sow the seeds of the next housing boom and the next debt crisis'. Karen Cox, the CEO of the Financial Rights Legal Centre, said:
Watering down credit protections will leave individuals and families at severe risk of being pushed into credit arrangements that will hurt in the long term.
And, as I said, the Treasury's own submission, the government's own economic advisor, said the laws enhance rather than detract from economic outcomes. You've got consumer groups, you've got financial counsellors, you've got vulnerable Australians, you've got academics and you've even got the Treasury saying: 'This is a dumb thing to do, government. Don't do this. You don't need to do this.' Why are you doing this? Because you've invented a fake credit squeeze when all the data is pointed in the other direction. There's no problem getting credit in this country. There's no evidence that the government have put forward. They're just doing the bidding of the big banks.
There are a couple more points I'd like to make. Even when you look at the regime they're putting in, it's downright confusing and inefficient. Under the proposed changes, lending decisions will be regulated by APRA for authorised deposit-taking institutions—banks—using their existing power to set prudential standards. What does that actually mean? Well, it means that APRA's current lending standards focus on prudential protections—that is, ensuring that the banks don't make lending decisions that destabilise the banking or financial system. That's what APRA does. That's their job. It's an important job. But APRA doesn't worry about consumers. That's not their job. Their job is to worry about the stability of the financial system. Yet the government's placing all their hopes and dreams—the idea that somehow vulnerable Australians will be protected from predatory lending—on APRA. But it's not a job that they have to do.
Under the new rules, under the government's proposals—I hope these die in the Senate—consumer lending will be regulated by three separate sets of rules and two different regulators, depending on the nature of the credit provider and the credit contract. They're taking a simple, proven, effective system that was recommendation 1 of the royal commission—'do not change these laws'—and replacing it with a mishmash to suit their mates in the big banks.
A very final thing I'll say: I was listening to the previous speaker in this debate, and I've heard it in the government's talking points—it's about small business apparently. Is it? They're scrapping the dominant-purpose test. The current rules say that if you go to the bank and say, 'I want a loan; it's a little bit for me personally and a little bit for the small business', you have to pass the dominant-purpose test, and the dominant purpose of the loan is what it will be regulated by. But the government's going to get rid of that. Well, I say our travel entitlements are governed by the dominant-purpose test. If we're going somewhere that's predominantly for work, that's the standard we are held to and the standard we hold ourselves to. If it's good enough for us, why is not good enough in this situation, when it's stood the test of time in consumer credit regulation? The government's on the wrong track with this. I hope they see sense and change their mind—or, if not, that this bill just dies in the Senate, as it should.