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The ‘negative’ impact responsible lending laws have on SMEs

Sarah Simpkins & Malavika Santhebennur
02 July 2021 2 minute readShare

Banking industry executives have argued in favour of a refresh for the responsible lending laws, reporting dragged loan approval processes and negative hits on small business owners.

The House of Representatives standing committee on economics grilled a number of the non-major banks alongside industry body Australian Banking Association (ABA) on Thursday (1 July), asking some for their thoughts on the government’s proposed repeals of responsible lending obligations.

The bill, currently before the Senate, would scrap responsible lending obligations for lenders under the National Consumer Credit Protection Act, with the government aiming to simplify the credit process.

The Senate recently pushed back on a motion from Greens senator Nick McKim to discharge the bill from the Senate notice paper – which would have forced the government to scrap it altogether or start again with its amendments.

While Anna Bligh, chief executive of the ABA, denied the body is actively campaigning for the repeals, she did say it would welcome “any changes to laws that would make the application and approval process faster, smoother and easier for customers”.

She also reported the body’s members do not believe the proposed changes will affect the already ample supply of credit available on the market.

“It is about the … process and the efficiency of the process and the speed of the process for customers,” Ms Bligh told the House committee.

“It is the view of the ABA that all of the responsibilities of prudent lenders can be met in a world that is rapidly changing when it comes to data and access to information about customers – that we should be getting smarter about it.

“These laws are 10 years old, having a look at them and updating them, it’s not a bad thing. But it is entirely a matter for Parliament. If the Parliament changes the laws, banks will adapt their processes accordingly.”

Bank of Queensland (BOQ) CEO George Frazis rallied for the proposed responsible lending reforms, claiming it would “simplify processes for both personal and small business customers”.

“The starting point is that responsible lending laws directly impact personal customers, but I’ll have to say does also impact small businesses, which is a point that sometimes is missed,” Mr Frazis told the committee.

“And that is, because for very small businesses, which is a big part of our banking operations, the personal and the business requirements of that customer are interlinked and are blurred, and that creates onerous processes for those small businesses, to actually get credit to either support their businesses or grow their businesses.”

He added the changes wouldn’t reduce customer protections and it would simplify the regulations, in terms of leaving it primarily under the charge of one watchdog (APRA).

“The issue with responsible lending laws at the moment is it does require onerous reporting of information that even as a bank, that [when] we’ve had a longstanding relationship with our customer, we’re required to ask those questions again,” he said.

“So, it does create quite a burden on our small businesses and also our personal customers that have been banking with us for some time.”

He made the comments as BOQ was completing its merger with ME Bank.

Robert Keogh, CEO of Beyond Bank, was a little more muted in his response, saying the bank supports the principle of responsible lending, but it is important to not overcomplicate the loan process.

“We’re owned by our customers, so whatever we do, it has to be in support of our customers. We are supportive of doing the right thing around regulation for organisations to operate under,” Mr Keogh said.

“Having said that, we are also mindful that we do not want to create an environment where it is actually very, very difficult to work with customers.”

While the broking and property industries have indicated support for the reforms, Labor and Greens senators alongside crossbenchers have pushed back, with naysayers including senators Pauline Hanson, Rex Patrick and Jacqui Lambie.

However, Treasurer Josh Frydenberg has stayed firm on the bill, insisting that as the country recovers from the pandemic, now is the time to wind back the obligations.

The ‘negative’ impact responsible lending laws have on SMEs
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Sarah Simpkins & Malavika Santhebennur

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