Borrower Beware: How Responsible Lending Changes Could Debt Most Vulnerable Australians | Banking
Carmel has a close friend, two dogs, and a $ 25,000 debt that she pays off at $ 114 bi-weekly.
How the 66-year-old retiree from the outer Melbourne suburbs got into debt is a long story. An alcoholic, Carmel quit drinking just two years ago to develop a habit of shopping for television. When she ran out of a $ 4,700 credit card, she went to her bank to take out a loan to cover the bill and maybe make repairs to her house.
When she asked for $ 20,000, the bank said why not $ 25,000?
“They knew I had an addictive nature. I am a former alcoholic. I told them everything. They had all of my transaction information right in front of them. They could see I had a problem, ”she said. “I just went with them. I thought they must know what they were doing.
It was money Carmel was never going to pay back and so she asked for help to fight it. When they looked at him, his bank admitted it shouldn’t have loaned him the money and said it no longer has to pay interest on the loan – but it still tries not to not think about how much she owes.
“It was a victory,” she says. “I was proud. They are great people. I am only a small point. You know?”
Carmel is not alone. Henry, 56, got into debt when he took out a series of loans to bring his partner to Australia from overseas. Shortly after, he says, he was in his car when his bank called him and told him he had been pre-approved for a $ 30,000 loan.
The paperwork, he said, had already been done.
“It was on the phone. I was in my car, ”says Henry. “And I needed to buy a new car, so I took the loan. That wasn’t the problem, though. The bank came up with some numbers to meet the loan criteria.
At that time, he owed about $ 60,000 and was paying $ 2,700 in repayments.
“It’s theft, but apparently it’s legal,” he said.
Love, addiction, divorce, workplace injury – the reasons many go into debt vary and now the government is looking to make it even easier with proposed changes to responsible lending regulations this hit the Federal Senate this week after passing the lower house.
The bill has two parts. While the explanatory documents are technical and complicatedThe simplified version is that the first half of the bill proposes an overhaul of responsible credit laws so as to remove the positive obligation for lenders to verify a borrower’s ability to repay debts.
It does this by changing the way these laws are applied. Rather than asking the Australian Securities and Investments Commission (Asic) to enforce the regulations, the changes will place this responsibility on the Australian Prudential Regulatory Authority (Apra), a body primarily concerned with the integrity of the financial system in as a whole rather than by people.
“Borrowers will be made more responsible”
Under this system, a lender would still be required to take “reasonable steps” to verify whether a person has the capacity to repay a loan, but a lender would only have to show that they have implemented procedures. systems to perform these checks rather than making inquiries. about a particular person’s finances.
The second half of the bill deals with payday loans and consumer leases by introducing a watered-down version of a old Coalition plan regulate the sector which fell into limbo after internal party opposition to the changes.
While the government seemed confident about the prospect of passing the law on Monday, it quickly became clear on Tuesday that it was not going anywhere in the face of opposition from all senators from all benches.
As a result, debate on the bill was postponed until May at the earliest.
The need for these changes is not entirely clear. When they were first introduced, the government said they were necessary to ensure loans were easy to obtain in the wake of the pandemic. In early press releases, the changes were described as the establishment of a “borrower beware»System that has shifted the risk against lenders in favor of banks.
“Borrowers will be more required to provide accurate information to inform lending decisions, replacing the current practice of ‘pay attention to lenders’ with a principle of ‘borrower responsibility’,” a government backgrounder explains.
Those words – “watch out for the borrower” – may have faded from the discussion and the economy may be on the road to recovery, but the government has remained committed to moving forward, with Treasurer, Josh frydenberg, claiming that changes are still needed to reduce bureaucracy.
“The reforms aim to improve efficiency, reducing the time and costs associated with providing credit to consumers,” said Frydenberg.
“The current regulatory framework, which was put in place over 10 years ago, too often causes delays in consumers obtaining credit, which can hamper their purchasing decisions.
The changes to the laws received broad support from Reserve Bank Governor Philip Lowe, who appeared before a parliamentary committee in August last year saying that the principles of responsible lending were sound, but the way they were implemented “needs to be reconsidered”.
“We can’t have a world in which if a borrower can’t repay the loan, it’s always the bank’s fault,” Lowe said. “On the basis of a portfolio, we want banks to give loans that go wrong, because if a bank never gives a loan that goes wrong, it means that it is not giving enough credit. “
Consumer advocates and economists argue that circumstances have since changed and the government’s rhetoric does not match reality.
More importantly, they point to legislative cuts against one of the main recommendations of the royal commission malpractice in the banking, pensions and financial services sector which advised responsible lending arrangements be left out.
“My conclusions on matters relating to the NCCP law can be summed up as ‘applying the law as it is’,” said the commissioner, Kenneth Hayne said.
“Banks can’t approve loans fast enough”
Consumer Action Law Center chief executive Gerard Brody warns that if passed the bill will send a “huge green light” to lenders, triggering a race to the bottom.
“Even if the big banks don’t change their practices immediately, there will be other lenders in the market who will. They will see this as an opportunity to take market share and lower their standards in order to give people more credit than they can afford, ”said Brody.
“Then the competitive dynamic will follow that when one player does, the others will follow or they will lose market share.”
Meanwhile, economist Dr Cameron Murray says that with the booming housing sector and a backlog of applications from new home buyers, it is unclear whether the changes will have any real economic benefit at this point.
“Banks can’t approve loans fast enough right now,” Murray said. “I don’t think that under these circumstances anything really changes, because we’re not at this point where any kind of responsible lending rule is limiting the willingness of borrowers to borrow and banks to lend.”
This was especially true in an environment of near zero interest rates and an economy based on steadily rising house prices.
“The more we advance with this [financialised] approach to housing, the harder it is to turn around, ”he said. “At this point, we can set the interest rate anywhere we want. Economists hate regulations and pricing, but they love to price silver as long as they and their friends can. And the interest rate is the highest price there is.
Outside the halls of power, the proposal has left many wondering why the government has changed course.
Robert Regan appeared as a witness before the royal commission where the retiree recounted how he got caught in a scam and took out a $ 50,000 loan from ANZ bank.
The bank manager who filled out the form on his behalf had manipulated the numbers to make sure they could give the money to Regan, even though he was living on a retiree’s income. When he arrived, the manager helped him transfer $ 20,000 to the UK “without a doubt”.
“I asked them, when will I be free from this expense? Said Regan. “They said I would be 101 years old. I said, ‘This is fantastic. I hope you will be there when I come in to make my last payment ”.
Since then, the crooks have been nabbed – thanks to Regan’s own efforts – the debt has been written off, and the CEO of ANZ Bank has offered Regan an apology, a handshake, and $ 100 for his troubles – but no refund.
With the changes, Regan says he’s worried about the next person who finds themselves in a situation similar to his.
“I was disappointed when I first heard about the idea,” says Regan. “Completely disappointed with Josh Frydenberg. He was the man who had all the say in what they were going to do to keep the banks in check and now he’s letting them go.
“It’s a sad situation for Australia, I think. When money takes precedence over everything.