Thursday, 8 October 2020
Banking and Financial Services
On 24 September 2020, Westpac copped the biggest fine in Australian corporate history—$1.3 billion. Ironically, it was that day that the Treasurer chose to announce that the government planned to roll back responsible lending standards. Responsible lending standards were put in place for one simple reason—to protect consumers and to protect the economy against the risk of irresponsible lending. Irresponsible lending isn't a matter of theory; it played a major role in the subprime debt crisis that led to the global financial crisis. Irresponsible lending helped fuel the property bubble in Australian cities.
Responsible lending laws apply to consumer credit, including mortgages, personal loans, payday loans, car loans and credit cards. Those laws don't apply to loans that are predominantly for business purposes. They require credit providers to make reasonable inquiries about a person's financial situation, their requirements and objectives; take reasonable steps to verify this information; and assess whether the credit is 'not unsuitable' before providing a loan. If those laws were to be axed, then lenders wouldn't be required to verify information on loan applications except in limited circumstances. They could turn a blind eye to brokers who provided false information. Again, this isn't a theoretical proposition. The banking royal commission heard from customers who had been hurt as a result of exactly this behaviour.
Care Financial Counselling, in my electorate, has drawn to my attention one particular example—a case study of a person named Amy, a young mother of three. She moved from interstate to escape her violent ex-partner. She was unemployed and was struggling to support her children. When they were together, her ex-partner had taken out a credit card in Amy's name without her knowledge and she was too scared to do anything about it, and the lender was chasing her for the debt.
Care found that, when they requested copies of documents related to the loan, the information in the application didn't match the supporting documents provided. Care was able to argue that the loan didn't meet responsible lending requirements and therefore the debt was waived. As Care Financial Counselling's Carmel Franklin writes to me:
Responsible lending protections are vital to maintaining a strong economy, and protecting consumers, particularly the most vulnerable, from falling victim to unscrupulous lenders and finding themselves in a cycle of debt. There is no evidence to suggest that current laws have in any way hindered or restrained lending ability of the finance sectors to those who have the capacity to take advantage of the numerous credit products on offer.
There is also a systemic risk here. As the Consumer Action Law Centre has pointed out, Australia has one of the highest levels of household debt in the world. In May of this year, Fitch Ratings said that household debt, at 187 per cent of disposable income, posed 'an economic and financial stability risk'. One in 10 loans are currently deferred—some $274 billion. Relaxing responsible lending laws during a recession could be systematically dangerous for the economy.
The problem in Australia is not laws around the supply of credit; it is a demand issue. Australia isn't creating as many small businesses as it used to. We don't have investments in the drivers of productivity, such as skills and a fibre-to-the-premises National Broadband Network. The government's dropped the ball on productivity, and irresponsible lending won't be a solution.
When this government comes up with a proposal to undermine the Hayne royal commission, we in Labor look at it with a great deal of scepticism. Let's not forget that the first recommendation of the Hayne royal commission was to enforce responsible lending laws, not to wind them back. The Liberals voted 26 times against the banking royal commission. Two years after it was hand down, as the shadow Treasurer and the shadow Assistant Treasurer have pointed out, the Liberals have failed to implement most of the royal commission's recommendations. Irresponsible lending is not the solution the economy needs and could be deeply dangerous for many vulnerable Australians.