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Banks embrace lending overhaul while consumer groups cringe

Maja Garaca Djurdjevic
Maja Garaca Djurdjevic
28 September 2020 2 minute readShare

The banks have welcomed the government’s decision to relax lending rules to ensure small business have timely access to credit, but not everyone is pleased, with consumer groups calling the move “the wrong solution for the wrong problem”.

Following the government’s proposal to overhaul the lending laws, recognised as outdated amid the current crisis, the CEO of the Australian Banking Association has applauded the announcement, but has asked the government to ensure the new approach strikes the right balance between maintaining strong consumer protections and providing critical credit into the economy.

“Banks look forward to working with the government to ensure the legislation works for both customers and the broader economy,” CEO Anna Bligh said.

Under the government’s new proposal, unveiled on Friday by Treasurer Josh Frydenberg, lending laws will change from 1 March 2021, if legislation is passed, to lift onerous barriers to small businesses applying for loans.

According to the Treasurer, the government will simplify the system by moving away from a “one-size-fits-all” approach while at the same time strengthening consumer protections for those that need it.

Key elements of the reforms include removing responsible lending obligations from the National Consumer Credit Protection Act 2009, with the exception of small amount credit contracts, as well as allowing lenders to rely on the information provided by borrowers to address the excessive risk aversion which has progressively entered the system.

According to the ABA, with the right balance, these changes will simplify the lending rules while maintaining strong protections for borrowers.

“Australian banks understand their role in supporting customers and rebuilding the economy. Ensuring the flow of credit to families and businesses, with the right customer protections, is paramount,” Ms Bligh added.

However, the proposed changes have been met with a grain of salt by others, with several consumer groups urging borrowers to beware.

CHOICE chief executive Alan Kirkland said he was worried that the removal of responsible lending laws could cost businesses.

“We got rid of the idea of ‘buyer beware’ in consumer law decades ago. To make it the principle that guides lending in the middle of a recession has disaster written all over it,” Mr Kirkland said.

“Products like credit cards are complex. That’s why banks make so much money out of them. Banks are in a much better position to assess a person’s ability to repay, so they need to shoulder some of the responsibility.”

Fiona Guthrie, CEO of Financial Counselling Australia, agreed and opined that “removing responsible lending obligations will free banks up to aggressively push credit onto their customers”.

“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,” she said.

Similarly, Karen Cox, CEO of the Financial Rights Legal Centre, said the government’s proposal is the “wrong solution for the wrong problem”.

“The problem people are having right now is too much debt and not enough income. The government’s solution is to take on more debt with fewer protections. Unsustainable debt hurts real people and is a short-sighted fix for a flailing economy,” Ms Cox said. 

However, late last week, the small business ombudsman opined that the reforms outlined by the Treasurer would give small businesses the confidence they need to seek funding to get through this crisis so they can grow and employ.

“Since the banking royal commission, small businesses have faced an uphill battle to secure a loan, due to unrealistic serviceability requirements from the banks,” ASBFEO Kate Carnell said.

“The pendulum has swung too far and now is the time to correct this imbalance which is harmful to small businesses.”

Banks embrace lending overhaul while consumer groups cringe
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Maja Garaca Djurdjevic
Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of My Business. 

Maja has a decade-long career in journalism across finance, business and politics. Now a well-versed reporter in the SME and accounting arena, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies and enabling citizens to influence decision-making.

You can email Maja on [email protected] 

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