‘Harmful law’: Coalition slammed for major financial overhaul

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Australia’s leading consumer advocacy organisations, charities, community groups, unions and financial counsellors penned an open letter to Australian senators on Tuesday calling for them to block the federal government’s proposed weakening of safe lending laws.

In late September, the government announced it was planning to scrap responsible lending laws, originally introduced to prevent predatory lending practices, that were exposed during the global financial crisis (GFC).

The changes in the law take away the obligation for banks to ensure that the consumer is capable of repaying a debt that they agree to and shift the onus back onto the consumer.

The open letter, signed by 122 organisations and 97 prominent Australians, calls on the senators to “block this harmful law”, which it claims will leave people worse off.

“The banking royal commission heard shocking stories of banks giving aged pensioners 30-year mortgages, relying on fraudulent loan documents provided by car dealers, and paying thousands in kickbacks to loan ‘introducers’,” the letter explained.

“We’ll see even more of this if banks and other lenders are not legally required to take care when lending.”

The banking royal commission made it clear that safe lending laws were important to stop banks from repeating previous mistakes.

Commissioner Kenneth Hayne’s very first recommendation from his final report was for the government to leave the National Consumer Credit Act alone.

The open letter is supported by new national polling that showed Australians supported responsible lending laws, with 79 per cent believing that banks should be required to check a customer’s ability to repay before being offered a mortgage.

Chief executive of the Consumer Action Law Centre Gerard Brody said the changes would mean that banks would face no repercussions for predatory lending practices.

“Under the government’s plans, borrowers would have existing rights to sue their lender for unsuitable lending removed,” Mr Brody said.

“Lenders would also have far fewer incentives to comply with good lending standards, because penalties for breaching laws are being removed and weakened. 

“Newly released November 2020 polling shows that 82 per cent of people believe there should be fair compensation for people when they are wronged by financial institutions. The government’s plan puts this at risk.”  

Pensioners were regularly a target of banks before the lending laws were introduced, according to chief executive of the Financial Rights Legal Centre Karen Cox.

“Before safe laws were introduced, lenders regularly sold unaffordable loans to people, including pensioners, people on Centrelink payments and casual workers, who they knew would never be able to repay the loans,” Ms Cox said.

“Responsible lending laws were designed to stop the reckless lending we witnessed throughout the global financial crisis and the royal commission.

“It’s beyond belief that less than two years after the royal commission made this its first recommendation that the government wants to go directly against it.”

Pensioner Robert Regan, who was the first non-expert to give evidence at the banking royal commission, was also appalled at the decision to weaken responsible lending laws.

“If Australia can’t have the support of the treasurer against misconduct in the banking, superannuation and financial services, then we, as a democratic nation, are in trouble,” he told the ABC earlier this month.

The changes are also opposed by the Finance Services Union who said that they were not in the public interest.

FSU national secretary Julia Angrisano said the union was concerned that proposed changes would lead to a return to the toxic work practices and oppressive work culture uncovered by the banking royal commission.

“We believe these changes will have a detrimental effect on the morale and health of front-line bank staff whose job it is to sell debt products,” Ms Angrisano said.

“We also reject the notion that there are significant barriers to obtaining credit, and this view has been confirmed by the chief executives of the CBA and ANZ banks.

“The FSU believes the impact of these proposed changes on workers will be catastrophic.  We will see a return to situations where workers are afraid to go to work, knowing they will be pressured all day to sell credit to people who cannot afford it.”

Will banks abuse their power again and put us at risk of another GFC if this legislation passes? Do you support the change? Why or why not?

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Written by Ben

16 Comments

Total Comments: 16
  1. 0
    0

    Gee are we really turning into a “nanny” state. What about people taking responsibility for their own choices. Changing the laws to make it easier for lenders should include making lenders responsible for closer checking on 3rd parties such as car dealers and mortgage brokers. If we step back to before Keating deregulated the banks, lending was all done “in-house” and all banks had lending officers who were paid a salary regardless of how many applications were approved. Proof of income was needed to be produced if there was any doubt and other checks were made through CWO.

    Come forward to this day and age and we have car dealers only interested in a sale and mortgage brokers only interested in a commission and the banks seem to accept applications from those people without much of a background check. Perhaps it’s time to make sure that applications are checked for truthfulness and if car dealers or mortgage brokers are found to be providing false information then stop their authority to take applications.

  2. 0
    1

    More stupidity by the government. Lowering lending standards so they can win a few votes. A 2-3% rise in interest rates would push many borrowers over the edge as they have massive home mortgages. Recent surveys show 10-15% of mortgage holders are already financially stressed. If they lose their homes these will be the same people who will claim the banks are corrupt. You can’t have it both ways. Dropping interest rates to zero has also been a stupid move by central banks as it has pushed asset prices such as house, bond and share prices into la la land. It’s only a matter of time when all this implodes.

  3. 1
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    Whilst the introduction of these laws may have been to curb previous lending practices, they have had unintended consequences. Lending organisations demanding to see supermarket grocery bills, subscription statements (think Netflix, etc) as well as bank statements, etc, is taking things way too far.

    The duty of care for the banks is to their shareholders. Therefore it is not in their interest to lend money (loans, mortgages, etc) to people who cannot repay them. And that is fair enough.

    But the borrower also has a responsibility to be able to repay what they borrow. And that may mean making uncomfortable lifestyle choices. It’s called a budget! They all whinge and moan if they are denied a loan, and still whinge and moan when they get it and fail to repay!

    • 0
      1

      Banks certainly did lend money to people who couldn’t repay. There were commissions to be made and if people couldn’t repay, there was always foreclosure.

    • 1
      1

      The lending laws were introduced to prevent another crisis as experienced some year ago when banks were offering anyone and everyone money without due care being taken to ensure a capacity to repay.
      We have the Global Financial Crisis and banks around the world were having to be bailed out by governments.
      The current government are more concerned about returning the budget to surplus, despite their denials, to prove how good money managers they are. To do this they are looking to consumers to borrow more and spend it to restore the economy.
      They are certainly not going to increase wages as that is not the right wing way of thinking.

  4. 1
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    Banks assessment of loans needs to be reviewed. The base modules they use doesn’t allow for individual circumstances and are seriously over inflated when it comes to assessing monthly living costs. Most people on Centrelink pensions for example live within their means and it doesn’t cost half of what these modules portray. Also confirmed and guaranteed income from other sources should be assessed on individual merit alongside account conduct with the lending institution. Pensioners have guaranteed income yet are disadvantaged and discriminated against by most lending institutions and this should be re-evaluated. I applied for a loan top-up with exemplary account conduct, used the same ongoing income criteria as for original application, only to be declined Why? Still haven’t had an explanation from the bank and I’m still paying the loan.

    • 0
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      Future pensioners should never cut up their credit card, possible reduce the amount level. When you give the card away it is near impossible to get it back once you are on govt only income. Kept mine although I pay it off every month it still costs $30 a year but it is sometimes necessary to have (booking a flight, hotel room reservation, renting a car to name a few occasions). Do not use it for credit as it is still 20.5% which is unbelievable. Getting 0.3% for a 6 month term deposit, soon better under the bed like old PM Malcolm Fraser once famously mentioned.

  5. 0
    0

    A bank loan is a contract. Contracts have to be entered into in good faith, and cannot be one-sided. If one party changes the conditions of the contract without agreement by the other, that is breach of contract, and actionable at law. The problem, generally, is that most borrowers are unable to afford legal remedies, so the banks, and others get away with it.
    The government is supposed to ensure fairness through the legal system, but its move to alter the balance in favour of the banks leads one to ask why, and who benefits? If a government cannot honestly and beneficially serve the people who elected it, then it loses all legitimacy.

  6. 0
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    As a retired bank manager, it was part and parcel of the initial lending interview to ensure that potential borrowers could afford the repayments required under the requested loan arrangement. I automatically refused applications from those who obviously could not. It should remain written in banking law that such a prudent approach must be observed by the banks. Not to do so is totally irresponsible. While we are about it, can we please outlaw “pay later” and other schemes which drag the financially innocent into debt?

  7. 1
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    Surely people need to be aware of their own financial position before embarking on loans or any other financial product. If not sure then get a second opinion. I do not condone any financial institution engaging in predatory, corrupt or underhanded processors. However, people at the end of the day must be responsible for their own actions. The alternative is then socialism and let the Govt do everything for you. mmmm sounds familiar.

  8. 0
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    The findings of malpractice by some Banks and individuals were scathing, not time to water down lending rules. Commission and bonus driven sales cam lead to malfeasance to say the least.

  9. 0
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    Mariner. I reply to your plea for use of credit cards, I note, you say it costs you $30 per year for having a credit card. Why?

    The question you should ask is “Do I buy now (usually on impulse) and pay later”. Why not save the money first, setup a no fee card, a new spending account and you get these advantages.

    1) Negotiate an interest free and no fee debit/credit card with your bank. Total yearly charges $0.
    2) Saving for the item beforehand will make you really think if you really need it. By the time you go to buy, you have probably decided you don’t need it.
    3) Paying by debit card is basically paying cash. You can negotiate a huge discount usually.
    4) If you haven’t got a spending account, create one. Then you have records of expenditure on your card.
    5) You have tax proof for the ATO if you buy something that’s tax deductible. Kitchen renos maybe.
    6) You can pay your regular bills from that spending account, in fact any bills especially if you use “Bpay”.
    7) You can view your spending habits say weekly, and top up or wait for the right time to balance the account.

    I’ll give you an example how this works. about six months ago I decided to renovate my kitchen and laundry. Aside from tradesmen’s fees, I decided to search for top of the line appliances. Here’s how I went.

    Oven: Bosch, listed $2,700 Purchased $1750.
    Dishwasher: Bosch, listed $1399 Purchased $999.
    Induction hob: Bosch, listed $1950 Purchased $1275.
    Range hood Aust., Listed $1500 Purchased $750. (last one)

    That’s a saving of: $2775. Yes I decided on the one brand and from the one store all purchased as a single purchase. Everything (except the range hood) was German made and all items have performed flawlessly since installation.

    I knew at the start I would need these appliances as the old ones had had it. So I made sure I had the money in my account before proceeding. On the day of purchase I spent an hour or so twisting the salesman’s arm before I could see he was about to cry, then decided on the final price. He could show on his record he moved $7,549 worth of goods and possibly made $100 commission, but I saved 37% with zero afterpay and a possible extra 20% if the card was a pure credit card. The time difference may have been two-three months, but the cost difference was alarming. So save before you buy and you can happily use your card for free.!!!!!

    • 0
      0

      You can ( and should) do exactly the same thing whilst using a credit card. After all, if you can’t afford to repay the credit card every month in full, you can’t afford to have a credit card. But it does save you having to carry large amounts of cash or making arrangements for a one off eftpost payment to cover a large bill.


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