Proposed changes to responsible lending regulations hit the Australian federal Senate the week before last. Since the 2008 – 2009 Global Financial Crisis, Financial regulation and responsible lending laws have been largely combative, with inflamed tensions between bankers and lawyers. The reforms were first announced in September 2020, in the hopes of boosting Australia’s credit flow, with Treasurer Josh Frydenberg stressing that ‘maintaining the free flow of credit through the economy is critical to Australia’s economic recovery plan.’ The anticipated changes would enable consumers to access credit quickly and easily. They also indicated a move back to a ‘borrower responsibility’ principle, instead of a ‘lender beware’ approach.
The bill proposed in March was split into two parts, with part 1 outlining an overhaul of responsible lending laws, particularly removing the responsibility placed on lenders to check whether a borrower has the ability to pay their debts (by altering the way the regulation is enforced). Under these reforms, lenders are required to take ‘reasonable steps’ to determine whether an individual has the capacity to pay a loan, although the lender only needs to display it has systems in place to make such checks, rather than having to inquire about the finances of specific individuals. Part 2 considers consumer leases and payday lending, with a plan to regulate the sector. Frydenberg said the ‘reforms are intended to improve efficiency… as the current regulatory framework…leads to delays in consumers receiving credit.’ The government were initially convinced that the possibility of passing legislation would be imminent, however as it was opposed by every crossbench senator, there appeared to be some delays going forward.
Several economists and customer advocates have disputed the reforms, arguing that circumstances have changed since a parliamentary committee was held on the matter last August. Chief Executive of Consumer Action Law Centre Gerard Brody said that the bill would “send a huge green light” to lenders if it passes, prompting a race at the bottom if some lenders ‘reduce their standards’. Unions, charities and other such bodies have also opposed the changes, with many signing a CHOICE petition to keep safe lending laws in place.
Previously, ASIC (Australian Securities and Investments Commission) would enforce such regulations. As a result of these changes, the responsibility will now fall on APRA (Australian Prudential Regulatory Authority), who, rather than focus on individuals, deal with the integrity of the financial system in its entirety. Prudential regulators like APRA and bankers both maintain that rather than prompting a relaxation of lending standards, the proposed changes will ensure an approval process free from the hindrance of extended bottlenecks.
Due to the federal government struggling to secure enough support in the Senate, planned changes have been delayed till June. However, rule makers and lenders are hopeful that it will pass through.