Thursday, 25 February 2021
National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020; Second Reading
The original question was that this bill be now read a second time. To this the honourable member for Whitlam has moved as an amendment that all words after 'That' be omitted with a view to substituting other words. The question now is that the words proposed to be omitted stand part of the question.
The bill before the House, the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020, is urgent and necessary because the Gillard government's responsible lending provisions quite simply are now throttling businesses in this country. The intent behind these provisions in the wake of the global financial crisis were good. We must always ensure that lenders are careful not to give loans to people or businesses who manifestly cannot pay them back. However, in the context of the financial services royal commission and the rightly powerful enforcement messages coming from Australian regulators, the responsible lending provisions have become a millstone around the neck of this country. $34 billion a month in credit sits under these regulations. In a post-COVID world, we will need that credit to flow quickly and efficiently. As sound businesses in the worst affected sectors around the country continue to struggle and whilst unemployment remains elevated, we must drive growth and investment with a finance system that can adapt to changing circumstances.
Finance brokers in Fisher have described to me how the Gillard government's responsible lending laws took a noble concept and turned it into a bureaucratic nightmare. The Institute of Public Affairs have gone further. They've described responsible lending laws as:
… a disaster—drying up credit long before COVID-19 hit, and especially when credit is most needed.
In creating regulation to protect customers, we must ensure that the rules remain flexible enough to adapt to worsening circumstances and serve customers in harder times.
To be fair to the Gillard government, the responsible lending regime was not intended to be as onerous as it has become. Nor was it intended to apply to small business loans. However, in the strict regulatory environment that has understandably followed the financial services royal commission, the reality has become very different. Regulators and loan providers alike have become substantially overcautious, introducing requirements that go far beyond the basic legislative tests and spreading responsible lending practices to all kinds of credit. ANZ CEO Shayne Elliott, giving evidence to the House of Representatives Standing Committee on Economics, summed it up:
The only rational response … is to stay away from the line. So you just stay away from the line; you build a buffer … we have become more and more cautious.
This response is all the more understandable in the context of the conflicting advice that can be provided around this issue by the Australian Securities and Investments Commission, or ASIC, and the Australian Prudential Regulatory Authority, or APRA. While ASIC, for example, states that lenders do not need to conduct a full responsible lending assessment for individuals converting from a principal-and-interest loan to an interest-only loan, APRA requires a comprehensive review. According to Mr Elliot's evidence, the Australian Financial Complaints Authority takes its own third approach to responsible lending. Even Reserve Bank Governor Philip Lowe agreed that this system needs to be revised. As he said during the aforementioned inquiry:
I think the principles in the legislation are sound, but I think the way we've translated those principles into reality needs looking at again.
He went on:
On a portfolio basis, we want banks to make some loans that actually go bad, because if a bank never makes a loan that goes bad it means it's not extending enough credit.
We need legislative clarity to replace the increasingly complex guidance provided by regulators and to get the flow of credit moving again. I cannot stress how important this is for Australian businesses today. Of particular concern are the extreme practices which have been introduced by ASIC's guidance on lending obligations to verify the information that they are provided with. ASIC has introduced some 90 pages of guidance with detailed processes which go far beyond the original intention of this legislation and, in effect, force many lenders to examine every line on customers' bank statements. Finance brokers have come to me in absolute despair, as have people who have applied for home loans, telling me that the banks have been reviewing how much they are spending at a coffee shop each month and how much they're spending at Domino's or a pizza shop each month.
Applications for finance can now take eight weeks to assess, with more than half of that time spent trawling through existing expenses which tell us little or nothing about an individual's capacity to pay. Anyone who has ever taken out a mortgage knows that your lifestyle when you have the debt is very different to what you have experienced before. Justice Perram of the Federal Court expressed this truth very colourfully:
I may eat Wagyu beef every day washed down with the finest Shiraz but, if I really want my new home, I can make do on much more modest fare.
He went on:
Without additional information, I do not consider that it is possible to accept that the consumer's declared living expenses tell one anything about their capacity to meet repayments under the loan.
Yet it is exactly this kind of detail which currently makes the difference between whether or not a hardworking family can get a loan, and it can even impact the flow of much-needed credit to a local small business. In the process, given the number of new loans issued each year, this approach is undoubtedly adding tens of millions of dollars to the cost of getting finance at a time when it has never been more needed.
Madam Deputy Speaker Bird, I invite you and anybody else listening to this to think for a moment what happens to Australian businesses and Australians when they can't get finance—they can't buy a car, they can't buy a house, they can't buy earthmoving equipment and they can't buy that new piece of equipment for their business that might drive innovation. That's what happens when we overcomplicate this system. The bill before the House will cut that cost and get credit moving again, by removing the existing inflexible responsible-lending obligations from those larger lenders offering home and business loans that are in many cases already being regulated by APRA. In the case of non-bank lenders who are not, the bill will give the minister powers to determine new lending standards that will align with APRA's requirements.
Under the new standards, lenders large and small will still be required to maintain strong consumer protections, to run appropriate credit assessments and to examine their customers' capacity to pay. However, the bill will allow lenders to apply flexible processes that are appropriate to the borrower and the type of product offered. It will also allow them to rely on the information provided by consumers, unless there are reasonable grounds for believing it to be unreliable. This will remove the sword hanging over the heads of those who write loans and will streamline the approvals process to deliver faster and fairer outcomes for all Australians.
While freeing up the flow of credit and ensuring that lenders can support our economic recovery, the bill also strengthens the protections available to vulnerable consumers. Small-amount credit contracts, also called payday loans, are disproportionately taken out by low-income Australians. These individuals are at particular risk from unscrupulous lending practices and from the spirals of debt and fees that can too often result from their use. The bill before the House protects these consumers by prohibiting small-amount credit contract providers from charging monthly fees after a small-amount credit contract is discharged. It also requires that these payday loans have equal repayments and equal repayment intervals so that repayments are clear, predictable and upfront and do not increase unexpectedly.
Finally, the bill directly protects those most vulnerable Australians by prohibiting small-amount credit contract and consumer lease providers from providing credit to individuals who receive significant proportions of their income from Centrelink where the resulting repayments would consume a large amount of that income. Credit providers would be prohibited from writing any payday loans or consumer leases that require a person who gets 50 per cent or more of their income from Centrelink to allocate more than 20 per cent of that income to those repayments. In the case of individuals who receive less than 50 per cent of their income from Centrelink, there would be separate caps of 20 per cent for each of small-amount credit contracts and consumer leases.
In an ideal world these risky high-interest products would not be necessary. The tactics used to promote them should be carefully controlled. This bill thus helps protect vulnerable consumers from experiencing pressure to take out a payday loan, by prohibiting unsolicited invitations to current and former customers as well as door-to-door selling of consumer leases. These protections have another important aspect that I want to touch on briefly.
These measures to increase consumer safety around payday loans will be important in the context of the use of credit in gambling. Study after study tells us that gambling leads to increased cost-of-living pressures on hardworking families, increases crime, antisocial behaviour and family and domestic violence, and drives up drug and alcohol abuse. It is clearly harmful enough that the growth of online gambling today allows vulnerable Australians to wager and lose everything they own, anywhere, anytime, with just a few taps on a phone. What is worse is that, today, credit cards can be used to gamble online, leaving vulnerable problem gamblers with huge debts that they cannot afford to pay.
As I've said, I believe we need to close this loophole; however, it is not the only way that credit can be used to facilitate gambling. Payday loans provide a destructive fallback option for problem gamblers who bet and lose more than can afford ahead of their next pay cheque. The use of these loans can, if unchecked, effectively facilitating gambling harms through short-term credit. The welcome provisions in this bill, extending the responsible lending requirements for these loans and introducing new regulations to limit the proportion of income that those receiving income from Centrelink can spend on credit contracts, will help to minimise the likelihood of these gambling-fuelled debt spirals in the future. However, in the case of traditional lower-interest credit products, where bank staff are expected to run through an individual's account, line by line, to check whether they have a Netflix account and how much they spend on pizza, we have a problem.
It is frustrating enough when responsible Australians in good credit cannot get finance for a sofa, a mobile phone, a car, equipment or a house, but the current situation is much more serious than that. Hardworking Australians with no record of defaulting on credit are in some cases unable to get a mortgage to buy a home. Successful construction businesses in my electorate of Fisher cannot get a loan to buy much-needed equipment which will help them grow their business. In those sorts of circumstances, the current regulations, if left unamended, are a handbrake on our economy, on our businesses and on innovation. In an environment where we are all, collectively, trying to assist Australians and Australian businesses, giving them a leg-up so that we can claw our way out of this pandemic, we need to do everything we possibly can in this place to facilitate that economic growth. This bill will do just that, and I commend it to the House.
I rise to speak on the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020. The primary purpose of this bill, as we now know from the earlier speakers, is to unwind the responsible lending obligations which apply to most consumer credit contracts. The reason that we are opposed to this is that it is an attempt to unwind or ignore the very first recommendation of the Hayne royal commission: that the responsible lending obligations shouldn't be amended. It beggars belief in lots of ways that those opposite, who opposed the royal commission for two years, voting against it 26 times, and dragged their feet on implementing the recommendations—only a third of them have been implemented and are in force, two years after the report was received—are now in here arguing that the government should be allowed to contradict the very first recommendations, on responsible lending laws, which act as consumer protections in the banking system.
Our view is that the government should not be using the pandemic or the recession and its aftermath as an excuse to do what they always want to do, which is to unwind important consumer protections in the financial system. It's like they weren't paying attention to the Hayne royal commission and the rorts and rip-offs that it uncovered. Those opposite get given a big report about all the rorts and rip-offs in the banking system, and their first inclination is: 'How can we unwind these protections, which the royal commission advised in its first recommendation that we should keep?' That is ridiculous. It really is next level to use this pandemic as an excuse to go after consumers. We won't be supporting that effort. We won't be supporting it for a range of reasons that I'm happy to take the House through.
In addition to that major change, the bill contains a number of other changes to the law relating to small amount credit contracts, or SACCs, and consumer leases. It sets a cap on payments for small amount credit contracts and leases: 20 per cent of a consumer's income, or 10 per cent if it's another arrangement. It sets a maximum cost of four per cent per month for consumer leases, requires that payments be equally spread and prohibits providers from charging monthly fees on the residual term if it is paid off early. Others have gone through the detail of the bill as it relates to those small amount credit contracts.
But we need to remember that this is primarily about unwinding those responsible lending laws. The responsible lending laws were introduced in 2009—as you may recall, Deputy Speaker—by the Rudd Labor government. They introduced the National Consumer Credit Protection Act, which put in place a range of directives around the conduct of credit providers, including requiring them to abide by a set of responsible lending obligations. What those obligations require is that credit providers make reasonable inquiries about a customer and assess whether a credit product will be unsuitable for a customer. In other words, these responsible lending laws are about making sure that people don't get in over their head, that people aren't caught signing up to loans that they can't repay, with all of the damage that that might do to their financial situation.
There's a big issue here, a big set of facts. If the government doesn't want to take our word for it that this is not necessary and not wise and not well motivated, just consider what's actually happening to credit access in this economy. We are all for the free flow of finance. We understand how crucial that is to this recovery from the recession, obviously. We want people to be able to access funds and access loans and borrow and pay for homes and pay for cars and all of that sort of thing. We want that to work as efficiently as possible. Those opposite—including the speaker before me, unfortunately—were going on about how there'd been some kind of choking of credit, that the laws are responsible for that, and that's why we need to change it. But, respectfully to that member, that is complete and utter rubbish.
This bill is a solution looking for a problem. If you listen to Kevin Davis from the University of Melbourne, he says:
… it is difficult to discern evidence in public statistics that responsible lending obligations have adversely affected loan growth or the cost of household-sector borrowing.
It's just absolute rubbish to suggest that we need to remove these consumer protections because there's been this chokehold on lending. The facts tell a very different story. Just look at the recent ABS data, the lending indicators for December 2020—they were released earlier this month—showing the total value of new loan commitments for new housing and the value of owner-occupied home loan commitments each reached record highs in December 2020—record highs! Yet still those characters over there will jump up, one after another, and say, 'We've got a big problem here: we're not getting enough loan commitments.' We had record highs in December 2020, the highest ever.
Another stat: the total value of new loan commitments for housing rose 8.6 per cent to $26 billion in 2020. That's a 31.2 per cent increase on December in the year before. It is laughable that they're pretending that there's been a choking off of credit because of these responsible lending laws. The responsible lending laws are about making sure that lending is appropriate, that people don't get in over their heads. They say there's been a choking off, but the facts show it's at record levels. Lending is at record levels.
A third and final fact is that the number of owner-occupied first home buyer loan commitments rose 9.3 per cent to reach 15,205. That's a 56.6 per increase cent since December 2019. This is the highest level since June 2009.
All of those facts absolutely torpedo the central premise of those opposite arguing for the removal of consumer protections. If it's not about removing obstacles to lending, which is at record highs, we know what it's really about: it's about unwinding consumer protections. They've never seen consumer protections that they haven't wanted to junk. They always side with the big banks against the interests of ordinary working people.
The people of Australia are doing what they can to work hard and get ahead. They're trying to borrow responsibly. You can see from that data that people are doing their best to sign up for loans and to service those loans. That lending is at record highs. Those opposite say, 'The problem we want to address here is there's not enough lending,' when lending is at record highs, and that exposes the complete and utter farcical rubbish at the core of what those opposite are trying to do.
Treasury's own submission to the banking royal commission said that appropriate responsible lending laws could enhance rather than detract from macroeconomic outcomes. Those opposite want to get up—and no doubt the next speaker will—and say, 'We've got a big problem here, and it's holding back the economy,' and all the rest of it, but we would save a lot of time if they just got up and said: 'We want to unwind protections for people in the banking system. We want to ignore recommendation 1 of the Hayne royal commission. We never wanted the royal commission in the first place. We want to junk it as soon as possible. We're using the pandemic as an excuse to do that.' That's what is really happening here.
I said it before, and I say it again: if there are legitimate issues that need to be addressed here, then let's have a conversation about that. If there are legitimate issues that need to be addressed, let's refine the system, let's speak with the financial institutions, as I do, let's speak to the consumer groups, as I do—if there's a legitimate problem here. But there's nothing in the data, nothing in the expert independent academic opinion, nothing in the Treasury's submission to the royal commission in the first place that suggest these responsible lending laws are anything other than important. They're certainly not holding back lending when you look at those astronomical numbers that I just quoted. They should stop using this pandemic as an excuse to unwind important consumer protections that are adding to the robustness of our financial system, rather than detracting from it.
Now, again, you don't want to believe the data, you don't want to believe the Treasury, you don't want to believe the University of Melbourne academic and you don't want to believe us. But, a decade after these laws were put in place, laws introduced by Labor in 2009, there was a survey of financial counsellors, and what they found was that 97 per cent of financial counsellors said that responsible lending laws should remain in place. Ninety-three per cent of them had used responsible lending laws to advocate for their clients. These guys are doing really important work looking after people in the financial system. They want those protections to stay in place, and so do we.
Even with these responsible lending laws in place, we've still seen some heartbreaking examples of irresponsible and predatory practices in the banking and financial services industry. Think about Financial Counselling Australia's survey of their members. Just think about it. The Financial Counselling Australia survey asked counsellors, 'What's the worst example of irresponsible lending that you've seen?' In my home state of Queensland, which is the home state of the minister at the table, the Minister for Industry, Science and Technology, an elderly man with mental health issues who was on the DSP was given three loans within a very short period because he'd been a good client. He was in severe financial distress over a long period. He was too embarrassed to see anyone as he felt ashamed of it. He said he walked past the front door of a financial counsellor six times before he could even go in. The FCA wants to leave these laws in place for people like that.
In a second case study a company gave an elderly man who was close to retirement a $60,000 car loan. After owning the car for a year he was forced into retirement because of poor health. He moved onto the aged pension and couldn't pay the car loan. The company made no inquiries regarding his ability to pay, and should have identified that the man was close to retirement age.
Unfortunately, these are not isolated cases; they're not one-offs. We saw from the Hayne royal commission that, even with these laws in place, there are still practices which are indefensible, there are still practices where people are encouraged to get in over their heads. We should be looking for ways to support them, not looking for ways to leave those people on their own, to leave them in the lurch and to leave them behind, as those opposite would do if and when this bill is passed.
What makes this bill even more galling is that, four years after the government announced they'd do a review into payday loans and rent-to-buy schemes, they've barely lifted a finger to clamp down on loan sharks and payday lending, despite repeated promises to support the 24 recommendations of the review
Here I want to commend my colleague the member for Oxley for his tireless and powerful advocacy in this area. Payday loans are almost exclusively used by people on low incomes in communities like his and communities like mine, next door. People who are trying to keep their heads above water are often preyed upon by these companies, who trap them in horrific debt cycles as a result of outrageous fees and interest rates which are hard to believe.
Even before the pandemic, the Consumer Law Action Centre said over 4.7 million payday loans worth an approximate total of $3.09 billion were written between April 2016 and July 2019, which represents around 1.77 million Australian households. Too many of those people end up in a debt spiral. A 2018 report examining financial literacy in my part of the world, where I grew up, where I live and where I represent now, Logan City, found there were 43 banks and credit union shopfronts and 45 high-cost credit businesses clustered in suburbs with low socioeconomic indexes like Woodridge and Logan Central, where my electorate office is. Obviously a lot of those businesses are targeting people who cannot afford to repay.
I think it's reprehensible that those opposite want to rewind responsible lending protections for consumers. They don't want to do anything meaningful on payday lenders and loan sharks, and that has diabolical consequences for the people I represent, the people the member for Oxley represents and people represented by so many members of the House. This is a solution looking for a problem. It's badly motivated, it's not supported by the data and it's not supported by expert opinion. Instead, as I've said again and again because I believe it, this is nothing more than an opportunistic attempt to use the pandemic to come after people and to unwind the protections which are necessary to make sure that people don't get in over their head.
We're on the side of people who want to work hard and take loans they can afford to repay to provide for their loved ones and put a roof over their head and all the rest of it. We are on the side of those people. Those opposite are on the side of the loan sharks and the payday lenders. They want to make it easier for the financial institutions of this country to do more of the kind of rorts and rip-offs the Hayne royal commission uncovered. They want to deliberately ignore, if not contradict, the Hayne royal commission recommendations with this legislation. We will continue to fight for the interests of ordinary working people in the banking system who deserve better. We want the banking system to be strong and profitable, but we also want it to be fair.
It's a great privilege to speak on the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020, focusing on Australia's restricting lending legislation and why we need to drive reform to enable Australians to go to a bank and get money. That's ultimately what this legislation is actually about: enabling Australians to access credit.
Restrictive lending laws that deliberately seek to deny or limit people being able to access credit don't hurt the top end of town. Truthfully, it actually favours them, because they just get to sit there in their cushy jobs, guaranteed there is no real risk, and take the cream off the top. It doesn't hurt the rich, either. It's not as if they've got a problem with access to credit most of the time, because they've got the assets to back it up, to have security, so that they can borrow the cash and get access to money. They're a safe bet. The restrictive lending legislation harms the poor. It harms the people on low incomes. It harms small businesses that want to grow. It harms people who don't have security. We all understand there's got to be proportionate risk around security as part of the process of lending, but these laws needlessly make it harder and create extra hurdles and barriers to the young, to those on low incomes, to those who want to get ahead and take risks so they might have their opportunity too. Is it really a shock that since we have introduced restrictive lending laws we've seen a massive growth in demand and credit from non-bank lenders? Is it really a shock that it's become harder and harder for people who live off their salaries and who don't have assets to access credit? Frankly, these laws are farcical in their operation today.
I will give you an example. I'm going to use a personal one. The other day I went to get an increase on my credit card limit. It was, politely, two-fifths of nothing, and I had to fill out 30 pages and wait three weeks. I'm fine. I can handle it. It's more annoying than anything else. But, for some people who need access to credit, secured or unsecured, to support their circumstances straightaway, it can be the difference between whether they can provide finance for their business or not. It can be the difference between whether they're able to purchase a property or not or a home or not.
And so it's absurdity we hear from the shadow Treasurer and others railing against it because they're the so-called champions of the poor; they're the ones trying to keep the poor in their place. We are trying to lift them up and give them opportunities to stand on their own two feet, because that's the essence of what liberalism is about—empowering individuals, families and communities. That's the foundation for the success of our country. It's not about trying to keep people in their place to maintain our political relevance, as those on the opposition benches do. The poor are the ones who are hurt most by the current legislation, and that's why reform is so essential.
But the scary thing is it isn't always just the poor; sometimes even the asset-rich are hit by restrictive lending laws. A number of self-managed superannuation fund holders who are out of the formal workforce and get income through dividends off their assets now can't go to the bank to borrow money. It's just absurd. That's people with millions of dollars in assets and rivers of revenue through dividends as the basis of their income and they can't go to a bank and borrow money. Whether it's for themselves to purchase another asset or whether it's to help their children to buy their first home—whatever it is—restrictive lending means they can't get cash. And for what? It's for the vanity of the opposition because they introduced a Northern American solution to a Northern American problem after the global financial crisis and won't accept they actually just got it wrong. Their legislation doesn't help Australia. It isn't solving an Australian problem. They have created a problem out of nothing to the detriment of everyone except for those with high incomes and large assets who are still in the workforce. It creates needless piles of regulation and processing and capital going towards creating jobs for regulatory compliance for nothing.
But the truth is it's not just for nothing. That's because the people being hurt by it are those people who want to get ahead. It's harder and harder for first home buyers to get a loan. It's harder for women who have found themselves divorced to get a loan to buy a home. This fits into a very long pattern of behaviour that we see from the Australian Labor Party. We know, with their prioritisation of superannuation over homeownership, they're throwing young Australians to the kerb on their dreams and aspirations to own their own homes. For those people who find themselves going through significant life events, such as divorce, in their 40s or their 50s, particularly women, the biggest impact on their retirement security is whether they're able to get into homeownership before they retire with enough time to retire their debt on a mortgage. They are being told by the Australian Labor Party, the Labor opposition and their mates in the super sector, who want to cream those same people's superannuation for their own profits and bonuses, 'No, we know what's best for you.'
The Labor Party doesn't care about these people's concerns or interests, because at the heart of its political agenda is a patronising world view that it has better judgement than people who can stand on their own two feet. Those opposite would rather older women had their superannuation eaten away by rent than for them to be able to enjoy the benefits of home ownership. They would rather keep them poor. That is their legacy. It may not be their intent, but it is most certainly the outcome. We see this consistently in their constant efforts to prioritise superannuation and their fund manager mates, to prioritise their fund manager mates' bonuses over the aspirations, dreams, opportunities and empowerment of Australians and their families. It's disgusting. They run interference when we raise and highlight fees for no service charged by industry funds. Why? It's because of their political proximity to them. It's because of their alliances and their interests and because they take donations, fees and support from exactly the same funds.
On this side of the chamber, we make no apology. We are in favour of empowering Australians and their families. We want them to be able to stand up and own their own home. It is the foundation of their security, it is the foundation of their opportunity and it is the foundation of their success in life. That's why I am proud to stand for 'Home first, super second', and I make no apology about it. What it will do is provide an opportunity for tens of thousands, if not millions, of Australians to have a better, more prosperous working life, and it will put them in a better position to save for their retirement than the alternative would.
Can I just interrupt the member for a moment and draw him back to the topic of the bill. I understand he was talking about super in the context of credit availability, but I ask that he now come back to the topic of the bill.
There is absolutely a congruence between access to credit, home ownership, superannuation and priorities in life, as well as the principles that sit behind them around empowerment for individuals and families. That's why these issues have such a relationship. The shadow Treasurer spoke specifically about home ownership, access to credit and the ability to borrow from the bank. Access to other forms of capital are a critical part of that story, too. The dishonesty from the Labor members who oppose regulation and legislation that remove restrictive lending comes from a fundamental misunderstanding of credit availability. You just need to listen to the Reserve Bank of Australia's governor, who often appears before the Economics Committee. I see the former deputy chair of the Economics Committee in the chamber right now. He knows that, when the Reserve Bank governor comes before the committee, he tells us exactly what his attitude is towards economic conditions and circumstances and the issues before him. Every time the Reserve Bank governor came before our committee last year, he spoke about, and was asked questions about, Australia's restrictive lending laws. He said that the guidance notes that were being issued by the regulators were directly hampering the capacity of people to access credit.
More critically, the removal of restrictive lending laws would not lead to the ridiculous circumstances boasted by those on the opposition benches. The macroprudential framework that has been put in place by the regulators would ensure that lending was appropriate. What we wouldn't have is needless paperwork and needless delay to 'yes'. We wouldn't have needless situations where young Australians who want to buy their first home miss out because the law gets in their way. What we want to do is make sure that the law not only protects consumers but also empowers them.
That's why empowerment through home ownership is so critical. Under our current laws, not just in restrictive lending but in other areas, like the prioritisation of superannuation over home ownership, we see the empowerment of capital at the expense of the consumer—at the expense of the citizen. That any member could sit in this place and say they're going to put capital before citizens and their empowerment, you'd have to start to question who it is they're here to represent. It's only citizens who vote for them, and they vote for them to come into this place to stand up for them, their community, their family and their country.
That's why I support this legislation. The pattern of behaviour from our opponents has been to stand up for capital at the expense of citizens. We on this side of the chamber are in favour of laws which empower citizens over capital.
Opposition members interjecting—
I hear some protests from members opposite, like the member for Kingsford Smith, who should know better about making sure that young Australians, new Australians and low-income Australians can have their opportunity at the Australian dream too. That's why the current laws don't work and why the current laws don't protect people, but pity them. Our focus is on what we need to do to mobilise people—individuals, families, communities and country—to be successful. That's what we want to empower: every Australian's chance at their own success.
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.
The National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020, which I'm very happy to speak in support of, is a bill that Australians would expect of this coalition government—that is, one that supports jobs and growth. In the simplest understanding of this bill lies the very clear intention to support those individuals who wish to take advantage of the rising tide that is currently lifting all Australian boats. All around us, the evidence of economic recovery can be seen; I will describe some of that in a moment.
First, it's important to view this bill in the context of the world around it. The year 2020 saw the greatest economic challenge the world has seen since the Great Depression. Stories that were once passed down to our generation from grandparents and great-great-grandparents are once again the stories of our time. I think of my uncle, Don Prentice, telling stories of his time during the Great Depression, of packing up his swag and going to find work. We aren't there, but those memories remain.
The year 2020 changed us. It shocked our economy and hurt many people's health and security. Whilst Australia has done very well in comparison to other economies, we have hurt. Just as the National Consumer Credit Protection Act 2009 can be viewed as responding to the challenges of its time, as the previous speaker detailed—in our case it was the global financial crisis—this bill responds to the challenges of today, and they're very different challenges. As difficult and dark as 2020 was for so many of us, Australia ended 2020 with consumer confidence at a 10-year high and the people of Australia found their feet after the initial turbulence of the pandemic. They found faith in the community's ability to work together, in our health system's ability to guide us towards safer shores and in the Morrison government's plan to rebuild our economy.
This bill offers something of an opening up of Australia's ability to access credit, and that is exactly what the people of Australia's confidence calls for. As a people we understand now is a time of growth, that 2021 must be a time that Australia proudly and deliberately takes a step forward out of the uncertainty that engulfed us in 2020. As a government we support that confidence. As a government we understand that a confident nation needs our support, not our suppression. As a government we understand the importance of leading with our strengths, and today we must view that 10-year high in consumer confidence as a great strength of this nation.
Earlier this year I spent time with Downs Group Training, listening to their plans to develop workforce capacity and capability in the Toowoomba region. I heard from their CEO, Kris McCue, on his organisation's optimism for the year ahead. We're talking about young tradespeople entering the market, viewing all the work that's happening, particularly as a result of the wonderfully received HomeBuilder scheme. It's great to see them entering their careers with optimism. As I often, do, I popped my head into one of Toowoomba's many fine cafes—on this occasion, The Finch. I had a great chat with the owners, Dan and Edwina, who confessed to me the worst-kept secret in Toowoomba, which is that they are expanding—a second Finch. I'm sorry, guys, but the word is out. This is a business that was initially hit hard by the pandemic shutdowns but which survived with the help of the Morrison government's economic recovery plan and their lifelines and which has now come out on the other side of that very difficult time with confidence. They are no longer looking for the light at the end of the tunnel but are now looking for the sunglasses as a bright new day dawns. It's not here yet, but it is dawning.
My local Toowoomba Toyota dealer tells me that his sale lots, which were almost completely empty only 12 months ago, are now full of people looking to take advantage of the government's economic recovery plans. The comeback is on. Almost 800,000 jobs were created in the past seven months, and the participation rate has recovered and reached a record high of 66.2 per cent. We know that our temporary JobKeeper payments and the billions in economic support provided enabled Australians to stay in work or connected to their employer. That is great news. It's a great thing for households, businesses and the economy. We know that our COVID-19 economic support measures helped families and have boosted business balance sheets by more than $200 billion. Again, at the heart of this government's efforts was a desire to support individuals and businesses during the pandemic.
We are continuing to work with business so that the private sector can lead our recovery. The government's full expensing for new business investments, creating jobs and our loss carry back scheme provides a much-needed cash flow boost for those who continue to do it tough. In Groom, that's assisting some 4,000 small and medium businesses. I believe the Prime Minister described this as 'a game changer like no other' and I heartily agree with that assessment. These measures saved not just livelihoods but lives. They kept food on the table, ensured that bills were paid and, importantly, ensured that the breadwinners of households stayed connected to employment. This meant there was significant economic flow across the economy, supporting jobs, particularly in small and family businesses. Feedback from business across the Toowoomba region has been clear that this support was critical during the lockdowns, particularly in regions such as mine, where case numbers were relatively low and people were going about their business safely and as normally as possible.
To support those businesses to get back up and running more quickly, with existing staff back at work, serving and selling, JobKeeper supported some 4,700 businesses in Groom, keeping us connected as a community. As JobKeeper steps off and businesses get stronger, our government will continue to support Australian households and businesses, and we'll do that by putting more money back into Australians' pockets and protecting more of what they have earned. In my electorate of Groom, 65,600 taxpayers benefit from this government's tax relief measures, and that's great. It means there is more money circulating in our local economy across the Darling Downs, supporting businesses in our community. As a result, we've seen the consumer and business confidence recover as the strong restrictions come off. It is the intent of the bill before us to support households, small businesses and the economic recovery. It's critically important that we deliver our economic recovery plan and provide households and businesses with more confidence to invest and create more jobs.
Part of that plan is simplifying Australia's credit framework and supporting the flow of credit to the Australian economy, with interest rates remaining at historic lows and fiscal policy having a greater role in supporting national economic growth, especially on the back of a coronavirus induced economic downturn. It's important that our regulatory settings are adequate for the issues of today. This bill will help facilitate, rather than hinder, the economic recovery and protect consumers and borrowers. This is not about the short term. This is not about getting a rush of credit. As part of our recovery plan, this bill is about improving the financial services sector for the medium to longer term. This bill removes excessive, duplicative barriers that hamper access to credit approval and make the process more timely. Our regulatory framework does not have to be burdensome to be strong, and this bill demonstrates as much. As businesses recover and seek credit to invest, we need to ensure our regulatory framework incentivises investment in jobs in our economy. This bill will enable that, while also protecting consumers, particularly vulnerable consumers.
This bill ensures authorised deposit-taking institutions will continue to comply with APRA's lending standards, requiring sound credit assessment and approvals criteria. The bill adopts key elements of APRA's ADI lending standards and applies them to non-ADIs. In reducing the duplicative burden, the bill enables lenders to rely on the information provided by borrowers, replacing the current practice of 'lender beware' with a borrower responsibility principle. The credit assessment process relying on information provided by a consumer, particularly by a small business where, in large, information is preverified through an accountant or other financial adviser, will avoid the need for extensive and intrusive verification processes. Of course, if there are reasonable grounds to believe the information being provided is unreliable, the bill maintains that lenders can make inquiries in relation to a consumer's situation like the existing conduct obligations. This enables a strong regulatory standard of assessment as to whether a credit application is suitable prior to making a loan without overburdening the applicant.
The government recognises that we need to simplify the system, and this bill does that by moving away from a one-size-fits-all approach while at the same time strengthening consumer protections for those who need it. This bill will protect the vulnerable in my community, especially within Toowoomba city. Toowoomba has for many years been designated by the federal government as a refugee and humanitarian settlement area because of the success of well-established collaboration and partnerships at different levels of government, settlement services, NGOs and the diverse community who provide support to new arrivals. On 22 June 2013 Toowoomba Regional Council became the third local government area in Queensland to become a refugee welcome zone. We are one of the largest regional refugee settlement areas and are very proud of that. I acknowledge Mayor Paul Antonio's fine leadership in this.
Our most recent arrivals include 2½ thousand Yazidi people with a refugee background. Many experience language difficulties and, unfortunately, trauma issues. Catholic Social Services, through the Toowoomba Refugee and Migrant Service, TRAMS, provide refugees and migrants who are new to our region with support to get settled into community life and enjoy a smooth transition into Australian society. The TRAMS program provides these refugees and migrants with assistance to become self-reliant and to participate equitably in Australian society as soon as possible after their arrival in the Toowoomba community. I note two small businesses in central Toowoomba are run by Yazidis. It's great to see them engaging so heartily in the community and doing so well.
At a recent meeting with Catholic Social Services it was highlighted that, due to trauma, these new residents are vulnerable and this often results in uninformed decision-making that consequently ends in bad outcomes, including bad financial outcomes. This section of society are still settling in and finding their way. They often have the barriers of learning a new language, learning how to read and write, learning new skills, customs and laws, and engaging in the workforce. This bill, particularly as it relates to small-amount credit contracts, helps protect these groups. These changes will make it easier for the majority of Australians and small businesses to access credit, will reduce red tape, will improve competition and will ensure that the strongest consumer protections are targeted at the most vulnerable Australians. I recommend this bill to the chamber.
Late last year when the Treasurer announced this policy in the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 some commentators who were sceptical of it and were opposed to it said that this is a solution looking for a problem. On reflection, I actually think that that characterisation of this policy is far too generous. It is true to say that there is no problem, but it is far too generous to call this policy a solution to anything. It is not a solution; it is a massive retrograde ideological step backwards in our regulatory framework. It is a step backwards that is going to put at risk many of the most vulnerable in our community. So, please, let's not at any point in this debate mischaracterise what we're seeing here today as a solution. It is a highly risky step backwards to a time long ago when the financial services sector contained many more risks for the most vulnerable. It is an unwinding of some of the most important protections in our financial regulatory structure.
What is the context in which this absurd bill is being brought to this chamber? The context of course is that we are now two years down the track from having received a very hefty, rigorous and well-received royal commission report from Commissioner Hayne. That's two years where only a third of the recommendations have been acted on in any meaningful way. That's far, far too long, when so many substantive recommendations are sitting idle. And yet in this chamber now today, we're being asked to support a bill from the government that is actually going to fly in the face of the very first recommendation of that royal commission. So at a time when two-thirds of the recommendations from that royal commission stand idle and when so much of the poor behaviour, so much of the malfeasance that shocked the public and so much of that behaviour which generated the public policy recommendations, stand idle we're being asked to unwind, to fly in the face of and to contradict recommendation 1.1. As earlier speakers on this side have noted, recommendation 1.1 was that the national consumer credit protection laws not be changed. And now we're being asked to gut them, to totally weaken consumer protections that have proved to be so vital.
This bill is a remarkable act of maladministration. As other speakers have noted, the National Consumer Credit Protection Act was brought in by the Gillard government in response to the GFC. What we're being asked to consider in this bill is a structure in which the protections in that act are going to be materially wound back. We're going to have an arrangement where lending decisions by ADIs—by authorised deposit-taking institutions—will be regulated by APRA, a body which is very expert in prudential regulation but does not have a consumer-facing expertise. And non-ADI lenders will be regulated by legislative instruments by the Treasurer and will be enforced by ASIC. So rather than the strong current arrangements, we're going to end up with consumer lending being regulated by three separate sets of rules and two different regulators. The remarkable achievement of this government is that they're going to simultaneously water down provisions and make them more complicated. This will become a case study for public policy departments around the country in how not to undertake regulatory change. Of course, as speakers on this side have noted on numerous occasions, this watering down and overcomplication of current arrangements flies in the face, not surprisingly, of one of the key recommendations of the Hayne royal commission.
This is a very disingenuous proposal being put by the government. Speakers opposite, to the extent that they've been able to mount any kind of rationale for it, claim that it's based on insufficient credit growth when, as speakers on this side—the shadow Treasurer and other speakers—have pointed out, credit growth is strong and many areas of credit are at record levels. It is a completely specious argument. Other speakers mount the argument that it's critical for the protection of individual rights, that people should be able to borrow absolutely whatever they want in any circumstances. That's a hollow rhetorical flourish. Let's be clear: it's a highly disingenuous flourish by those opposite. If they genuinely believe that—if they're genuinely so wedded to individual rights above anything else, then why don't we get rid of consumer protection altogether? If it's such a great thing to water down these provisions then let's get rid of them altogether.
Let's look at what the experts say in relation to this proposal from the government and the Treasurer. Karen Cox, the CEO of the Financial Rights Legal Centre, who was the opening witness to the banking royal commission, said:
The problem people are having right now is too much debt and not enough income. @ausgov solution is to take on more debt with fewer protections.
Watering down credit protections will leave individuals and families at severe risk of being pushed into credit arrangements that will hurt them in the long term.
Fiona Guthrie, the CEO of Financial Counselling Australia, an organisation that represents the people at the coalface of having to help vulnerable people who have been abused by the system, said:
As we learnt to our cost during the GFC, weaker lending standards mean people will be loaded up with as much debt as possible. There is significant profit to be made in pushing borrowers to the edge.
Financial Counselling Australia undertook a very important survey of financial counsellors. Ninety-seven per cent of those surveyed said that responsible lending laws should remain. So they agree with Commissioner Hayne; they agree with the Commonwealth Treasury; they agree with the experts—97 per cent. And 94 per cent of financial counsellors either strongly agreed or agreed with the proposition that responsible lending laws are an important component of consumer protection.
Alan Kirkland, the CEO of CHOICE, said:
We got rid of the idea of 'buyer beware' in consumer law decades ago.
This is a completely retrograde step. As Alan Kirkland points out, this is going back decades to a completely old mindset in terms of how the regulatory system should be structured.
Gerard Brody, the CEO of the Consumer Action Law Centre, said:
The Hayne Royal Commission was a 'watershed moment'.
He also said:
The Commonwealth Bank recently said that the flow of credit is above pre-COVID levels and that lending is growing at a strong pace. And none of the big banks opposed the responsible lending laws at the recent House of Representatives Economics Committee hearings
As Gerard Brody rightly points out, all big four bank CEOs gave evidence over the last few months to the House economics committee. None of them argued that these laws should be gutted. None of them contradicted recommendation 1.1 of the royal commission. The big four bank CEOs are also instrumental in the credit system, and they all supported the notion that suitable protections should remain in place.
Kevin Davis, one of the most distinguished independent academic experts on financial regulation and the macroeconomy in Australia, said:
The axing of responsible lending obligations … is particularly egregious … This is the triumph of ideology and vested interests over logic and evidence.
Kevin Davis's comments had great foresight. It is a triumph of ideology, because all that we've heard from those opposite are these hollow rhetorical flourishes on individual rights, with very little intellectual content behind them. If they truly believe some of those rhetorical flourishes, as I said, why not get rid of consumer protection altogether? As Kevin Davis said, it flies in the face of logic and evidence, because, as multiple speakers on this side have indicated, credit growth is strong and some components of credit are at record levels.
It is absolutely absurd to come in here and to assert that this is necessary for the economic recovery. It is clearly not. Economic experts say it's not. Treasury says it's not, the big banks say it's not, and even a superficial reading of basic ABS statistics says it's not. Treasury has said that responsible lending laws are providing stability to the finance system overall. They have said that they are not impeding the flow of credit and that scrapping them will lead to 'more instances of consumer harm'. Josh Mennen, from the Australian Lawyers Alliance, said that axing banks' responsible lending obligations is 'a recipe for financial hardship'.
Importantly, APRA and ASIC weren't properly consulted. Sean Hughes, ASIC's commissioner with responsibility for credit, had no input. He told the House economics committee late last year that he was first advised about these plans when he read the Treasurer's media statement. Now he's going to have to be responsible for an important part of regulating this new dog's breakfast, this more complex but watered-down set of arrangements. The banking regulator only got notice in early August. The process was rushed and lacked consultation.
So there are all these experts. We have experts across consumer advocacy. We have experts from financial counselling—the people who are actually seeing these complex cases of financial abuse. We have macroeconomists in Treasury and macroeconomists in academia. We have commercial experts. We have big four bank CEOs. We have lawyers. We have regulators. We have the government's own advisers in Treasury. None of these people support contradicting the royal commission. So this government sits on two-thirds of the royal commission's recommendations but comes in here with the most specious of arguments to overturn the royal commission's first recommendation, which is one of its most important.
This, of course, is going to be absolutely disastrous in many communities around Australia—communities like mine, in Fraser. I hear many harrowing cases of Australians dealing with situations of financial abuse, financial distress and insecurity. Brimbank Melton Community Legal Centre has told me harrowing examples of many residents of Fraser who have been financially abused. They shared examples like that of Sarah, whose lack of fluency with written English was exploited by an unscrupulous lender to saddle her with unsustainable debt, culminating in repossession and severe hardship. Some of those opposite might come in and say that individual rights trump all, but, as I say, it's a hollow rhetorical flourish. If they genuinely believe that I want those same people to come in here and say, 'Be gone with all consumer protection,' I think it's a very disingenuous ideological argument for a sham piece of legislation.
What about Laura—of course, not the person's real name—who applied for a credit card? She's another vulnerable, low-income person. She applied for a zero per cent credit card. When the credit card was approved and provided to her, she found out later that she was actually paying interest. Without her ever finding out, she was given a different credit card to the one that she was offered. The onus is on those opposite to explain how these new laws will be sufficient to provide protection for people in Sarah's situation or Laura's situation. The lawyers and the financial counsellors and the other experts—the commercial experts and macroeconomic experts—are very concerned that watering down these laws will mean that people like Sarah and Laura will have far less recourse to remedies. Those opposite have to justify why putting people like Sarah and Laura in harm's way is justified, and they have no arguments—no justification whatsoever.
Let's be very clear what we're facing in this chamber today. It is an absolutely reprehensible bill that we're facing. We have a government that resisted a royal commission 26 times. They did not want the royal commission to happen. It shouldn't be a surprise that when they begrudgingly received the royal commission's findings they dragged their feet to implement those recommendations. Two years later, two-thirds of them still sit on the shelf. What's even more galling than the fact that two-thirds of the royal commission's recommendations sit unattended to when they're so important, when people continue to be vulnerable, when people continue to be abused, is that the government is now coming into this place and arguing that we should unwind what has been done.
As I've said, it's a highly, highly disingenuous set of arguments that they're running. It flies in the face of evidence. There is no argument possible to be made that the economic recovery relies on watering down consumer credit protections. Consumer credit growth is strong, and all of the experts—experts at Treasury, experts at the big four banks, expert macroeconomists in academia—point to the fact that we do not need this bill today to support the economic recovery. Other experts in financial counselling, experts in the law and experts in consumer advocacy groups point to the fact that there is real vulnerability. So this is not a solution looking for a problem; this is a massive, detrimental step backwards with a disingenuous argument in its support.
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.
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.
This government is yet to find a bank or a loan shark that they don't want to help or one that, when it puts its hand out, they don't want to lift up. It's a pity they won't do the same for consumers, customers and vulnerable Australians. I think it's now been almost four years and nine or 10 months—the member for Macquarie might be able to help me out here—since I arrived in this chamber, and I think probably from the second week of parliament when I was sworn in I have been talking about protections for people who are being ripped off by the loan shark industry or by banks in this country. Many people on this side of the chamber are starting to sound—although I hate to use a cliche in a debate—like broken records. But I fear that the record player has completely broken, because this government has gone down the path of a lack of respect and a lack of any protections for Australians.
Even during a pandemic, in legislation before the House today the government is asking the Parliament of Australia to remove responsible lending obligations for a majority of consumer contracts. During a global pandemic, during a national recession and with rising unemployment—a million Australians unemployed, record household debt, terms that are crippling businesses in this country—why would the government want to put people on the scrap heap even further? That's exactly what I believe these laws will do.
Responsible lending obligations were part of the National Consumer Credit Protection Act 2009, which was introduced by the Labor government, partly in response to the global financial crisis. Responsible lending obligations require credit card providers to make reasonable inquiries about a customer and assess whether a credit product will be unsuitable for them. These are commonsense, practical laws that have served our country well. Responsible lending obligations apply only to consumer credit contracts, not commercial credit contracts—for example, small business lending. As we know, that is another jurisdiction. But the remainder of the bill relates to small amount credit contracts and response to the independent 2016 review of the small amount credit contract laws, which I will focus on a little in my remarks. I know the member for Lalor will be champing at the bit to talk about this in today's debate, just as she has every week, it seems, that this parliament has sat.
We know the bill has been discussed quite widely in the media, not because of anything the government's done or any advice or information that the Treasurer has delivered to the people of Australia. I add that not even the banks have requested this. Let's put that on the record. This is not something the Banking Association or the big four have issued public statements about or have written to the Treasurer about, demanding that the Prime Minister take action. I won't speak for the major lending facilities in this country, but I reckon if I were one of them I'd be scratching my head and saying: 'What on earth is the Treasurer on about? We didn't ask for this. We have enough to deal with as far as I'm concerned.'
Just last week, we saw 23,000 Australians call for responsible lending laws to be strengthened, not removed. In the lead-up to the Senate Economics Legislation Committee inquiry, which hosted hearings in Canberra last Friday, which I carefully looked at and followed, we saw more than 23,000 individuals sign a letter to every Australian parliamentarian demanding protections be maintained. The request, as organised by consumer advocacy group Choice, is backed by 125 charities, unions, academics and financial counsellors. Let's put that in perspective: the banks and the Banking Association didn't call for these reforms and 125 charities, financial institutions, financial counsellors and leading consumer advocates didn't ask for these reforms. So I've got a really simple question for the government: Who did? Who came up with this idea? Who possibly thought it was a sane or sensible move to put this into legislation?
These checks and processes that banks and lenders have to abide by when offering consumers loans are critical to ensuring that consumers are protected. The aim is to lend only to those who are in a position to repay debt, rather than see repayments missed and interest and fees incurred, leaving the borrower facing greater financial hardship. As I said, these laws were introduced in 2009 under the National Consumer Credit Protection Act in response to shoddy lending practices which we saw during the global financial crisis. Watering down unfair lending restrictions is unacceptable now and in the future. The government knows doing this will expose people to significant financial harm. The profit is not worth the pain. Without responsible lending obligations in place, a bank could send a pre-approved $5,000 limit credit card to a person in my electorate of Oxley whose only income is a disability pension. The bank could do this even when they know that the person's income is not enough to service a loan.
This bill will leave vulnerable people in our communities open for attack. It will hurt young people, elderly people, people on the disability support pension, people in abusive relationships, Indigenous Australians and people of non-English-speaking backgrounds. Now, of all times, we need to be looking after people, not harming them. As we heard from the Financial Rights Legal Centre in their submission:
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 is inappropriate and unaffordable credit. This is another example of the government's COVID-19 recovery strategy leaving people behind. It's happy for businesses and banks to thrive at the expense of vulnerable Australians.
I want to turn in my remarks to the regulation legislative instruments set by the Treasurer and enforced by ASIC. These are the non-ADI-lender regulations, which I believe are poorly thought out. 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 contract. I want to know: why are we making this even more complicated? Why disconnect regulators and make it harder for safeguards to be enforced?
This is another example of the government directly going against recommendations from the royal commission. Treasury's own submission to the banking royal commission noted that the responsible lending laws are better for the economy. That's not Labor saying that. That's not the charities, the academics and the financial counsellors saying that. We've now got Treasury's own submission saying that the responsible lending laws are better for the economy. We need to put our efforts into advancing legislation that ensures the economy is, as the government like to say, built back stronger after COVID-19, so why are the government trying to get in the road of that?
I refer now to some remarks about the irresponsible changes to the small-amount credit contracts law. The bill contains changes to laws governing small-amount credit contracts and consumer leases: a cap on payments for small-amount credit contracts and consumer leases at 20 per cent of a consumer's income, which is separate for SACCs or consumer leases, or at 10 per cent of a consumer's income; setting the maximum cost of four per cent per month for CRNs; requiring that payments be equally spread over the course of a loan; and prohibiting providers from charging monthly fees in relation to the residential term of a loan when it's paid out early. There are problems with these. Some of these details are incorporated in the draft regulations rather than the primary legislation, but the biggest concern I have is that these changes were the government's response to the independent small-amount credit contract review commissioned in 2016 by then minister Kelly O'Dwyer. Once again they fall short of actually what was recommended.
A member of the government came up to me and said: 'You must be happy we're dealing with the SACC reforms. You've been talking about this a lot, Milton.' I said: 'You've got part of the equation right; I have been talking about this non-stop for about four years and 10 months, but it doesn't do what your own reform said. It doesn't do what Minister O'Dwyer recommended. It doesn't actually deliver the legislation that the now Deputy Prime Minister, Mr McCormack, promised when he delivered the explanatory memorandum to this House. It doesn't do that. It waters it down.' I'm not going to give any credit to the government for watering down their own legislation and their own proposals that their recommendation said they would deliver.
All credit to former Prime Minister Malcolm Turnbull—and that is not a name you hear from those opposite any day of the week. He wrote to me in July 2019 and said, 'After a long wait, the exact legislation you've been calling for will be introduced.' The only problem is that the now Prime Minister and Minister Dutton decided to see him off as Prime Minister. So we're seeing a shortfall of the recommendations that were actually promised.
The law this government is proposing doubles the debt repayment cap for people whose income is not predominantly from Centrelink. This bill makes it perfectly legal for people to be charged up to 40 per cent of their monthly income to pay back lending fees. In the Oxley electorate the average household income per month is $3,660. If a family spends 40 per cent of that income on debt repayments, that brings their funds down to $1,464 per month to pay their rent, to pay bills, to get school supplies for kids and to put food on the table. The fact that this government are even entertaining those changes shows once again that they are not on the side of working families; they are simply on the side of big business.
The SACC review recommended that fees for consumer leases be capped at four per cent of the retail price of a leased good. The proposed law allows for four per cent of fees to be calculated on the price plus delivery and installation fees, plus establishment fees of 20 per cent on top of that cost cap. This means that consumers could be paying equivalent annual interest rates of over 100 per cent. As we know, the devil is always in the detail when it comes to the fine print of this legislation that the government is trying to ram through the parliament today. This fine print will, I believe, have devastating impacts on people.
Yet again this government has put forward a bill that doesn't make sense. Under this bill it's easier for banks to saddle working Australians with debt—debt that the banks didn't even ask the government to deliver. It will be harder for those Australians to get out of debt. It will be leaving people behind at a time when we should be building confidence and supporting consumers to grow the economy. This bill appears to be a shameless move by the government to give a big free kick to the banks at the expense of ordinary people. The government, we know, has ignored the first recommendation of the banking royal commission. The very first recommendation has been ignored and blown apart by this government, proving once again that this government can't be trusted to do the right thing by Australians and regulate the financial sector properly.
This bill has enormous consequences for vulnerable and working Australians. It has consequences for the community groups and advocates that I have been working with over the last couple of years to give justice to the people who just want a fair go. It has consequences for the businesses that have been ripped off by the loan sharks in the financial sector. It has consequences for the pensioners and their advocates who have been out there trying to get their money back and make sense of the contracts that they've signed. We're simply asking for a fair go for people who need support.
This bill waters down the lending provisions. It puts vulnerable Australians entering into contracts at risk—and I use those words 'at risk' strongly. It's not good enough for the government to simply say, 'Well, it's a piece of legislation that we've been working on for a while,' without any due explanation. As I said, the Treasurer of Australia can't explain why these laws are required. The members of the government can't explain why these laws are required. Last week, we saw 23,000 Australians, including financial counsellors and people from the non-profit sector, voice their concerns. I know from speaking to them firsthand how fearful they are of this legislation. I simply ask the government to rethink this strategy. Rethink what you're doing. Think of those Australians who need the financial sector to be on their side.
I'm pleased to make a contribution to the debate about the legislation before us today, the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020. I'm also pleased to follow my friend the member for Oxley. I say 'friend', but he's also a great colleague, and we have lots of things in common, not least of which has been our advocacy in the space of payday lenders and the damage they're doing in communities across this country. The legislation before us does two things: it removes the responsible lending obligations from the banking sector, and it seeks to implement changes in the space of payday lending. We call them 'small amount credit contracts', but, for those tuning in at home, these are the payday lenders and loan sharks that you've heard me speak about many times. The government want some credit today for implementing changes in the payday lending space. The problem is that they had their own review into this in 2016 and what's before us today has failed to put in place the recommendations of that review, so they're not even listening to themselves or addressing what they uncovered in their own review.
The bill will do something, but not enough, to protect people in my community and in communities across this country who are preyed upon by businesses to buy debt and pay it back at exorbitant rates. To get to the nub of the matter, the recommendation from the review was that 10 per cent of someone's income should be the upper limit of what they could be required to pay back. The government have ignored that recommendation and taken that limit up to 20 per cent. They've flagrantly ignored their own recommendations, after waiting four years, since 2016, to bring in any new regulation in this space, and this is despite them recognising the need for it. The other thing this legislation does is ignore the first recommendation of the Hayne royal commission into financial services, which was: do not undo the responsible lending laws, which were implemented after the global financial crisis.
Like many here, I know that when I was first elected I sat with victims who eventually gave evidence to the banking royal commission and I heard their harrowing stories—they were absolutely harrowing stories. I want to put on record today how disappointed I am that they've been ignored. I also want to make the point that part of this legislation has no friends. The legislation before us has no friends. The big banks haven't asked for this and the community legal centres have been at pains to explain to us why this will be a disaster for vulnerable people in our communities, and even for the not-so-vulnerable people in our communities. The Consumer Action Law Centre in Melbourne and my own community legal centre, WEstjustice, have met with me time and time again around this. Financial Counselling Australia wrote to us and outlined what they perceive to be problems with this legislation. I've even heard from my local mortgage brokers; they don't like this piece of legislation either. And the academics don't like it.
So it has no friends, but here we are in this parliament, under the cover of COVID, undoing something under the banner—looking at the name of this legislation—of the National Consumer Credit Protection Act. What we're doing in this chamber today is opposing the government for undermining and taking away consumer protection. I've been listening, as have my colleagues, to those opposite, and I was particularly perturbed to listen to the member for Longman, who spoke about the battling Australian communities that he represents in this place. He went on and on about a supposed impossibility, because of the recession, for people to get credit. Let me tell him what the outcome of this will be: there are people in my community who, while the responsible-lending laws are in place, are now working with community legal centres in trying to weave their way out of debt and trying to get the banks in this country to act responsibly under the existing law. And the member for Longman is going to allow that to be removed, leaving these people with less capacity to weave their way out of the problems they have got themselves into because institutions have been too quick to give them credit when they didn't have the capacity to repay it.
There's one case that I know of locally which I think is worth considering in this space. This is a couple who have a mortgage with one major bank, and they then have four separate loans across the four banks. This is under the current legislation, which says that the banks shouldn't lend if there isn't a demonstrable way to pay it back. This family couldn't possibly pay back all of those loans on their income. That was pre COVID—they couldn't possibly do it.
Let me just be really clear for the folk listening at home: working in schools for most of my adult life, I know what this kind of financial stress does to families. I know the chaos that this kind of financial stress brings into kitchens. I know the pressure it puts on children who are living in that chaos, who are getting up in the morning and going into the kitchen to find a stressed-out parent sitting at the kitchen table with 17 bills in front of them and wondering: 'How am I going to get through this week? Which bill should I pay first?' This legislation is going to make that happen in homes in my community. This legislation is going to enable the banks to give loans to people who cannot afford to pay them back, with full knowledge of what that's going to do to families. It's going to mean that there are children sitting in classrooms who have come from a chaotic morning where parents have been yelling at one another because they're stressed out.
Financial stress has emotional consequences, and those emotional consequences are felt by children around this country. Do you want to do us all a favour? Go back and give this some more thought. Nobody thinks this is a good idea. Nobody thinks that allowing the banks to give credit to individuals when they cannot afford to pay it back is a good idea. Nobody does.
We know what the impact of this legislation will be. For those members opposite who somehow think that this about credit for business, that's not what this is about. This is about credit for individuals. This is about people being able to take out loans to get through this week but, beyond this week, only driving themselves down into a debt cycle. The impacts will be very real, and the government are being incredibly irresponsible to even think about bringing this into the parliament. They're ignoring the royal commission. We know they voted against it 26 times. We know they didn't want to hear. We know they didn't want to sit with the victims of the banks through that period. But to have them actually undermine recommendation 1 is appalling.
As to the outcomes of the royal commission's recommendations, I sat with mortgage brokers in my community and I listened to their concerns about some of those recommendations. I just want to share with the House a mortgage broker's response to this. He's written to me to say that he's obliged to put the customer's interests first but this legislation will mean the banks don't have to. They won't be held to the same standard as a mortgage broker.
We have countless examples given to us by Financial Counselling Australia and others who work with people to try and undo this harm, to try and find a way through. They think that the responsible lending laws should stay. They believe the laws protect consumers. They use the laws to help their clients. They predict they will see more clients with unaffordable debt if these laws are scrapped—in other words, if this legislation goes through this parliament. They believe scrapping the laws will hinder the economic recovery from COVID-19. They're very concerned about the impact of repealing the responsible lending laws on their clients and on the broader community, and they believe such a move will be harmful to individuals, families and the public. And they're tired. They're tired of working with people who are being preyed upon in both spaces here: in the credit space and in the payday lending space. They're incredibly disappointed that the payday lending recommendations will not be fully implemented by this legislation—the recommendations, as we've said, that the government itself put forward—and they're absolutely disappointed that this government would be acting under cover of COVID to undo laws that were designed to protect people in our communities, at a time when people are under enormous financial stress anyway, as well as suffering anxiety about their futures.
So, from this government, what we're seeing is layer upon layer upon layer. 'We want to make workers less secure in their jobs.' That's what this government is doing in this place this week. 'Then we want to be able to give them credit they can't afford to repay.' It leaves me wondering which planet those opposite live on. Do they live in the same Australia as those of us on this side do? Do they sit at tables in their electorate offices, speak to real people on the ground and hear the impacts that their ideology has in real homes, on real people? Do they understand that the laws we make in this place have very real impacts in the community?
This piece of legislation is absolutely reprehensible. It flies in the face of logic. Most importantly, it flies in the face of the government's own recommendations around payday lenders and loan sharks, and it flies in the face of a royal commission—the first recommendation from a royal commission. It is really difficult to walk back into this chamber day in, day out and watch this government pass legislation that is actually going to mean real harm to the people in the communities that I represent.