Last month we were left flabbergasted when, out of nowhere, Treasurer Josh Frydenberg announced that the government would axe responsible lending rules:
If you want proof that Australia’s economic managers are really just bubble managers, here is your smoking gun.
This is a watershed moment in Australian banking and property history.
Consumer groups promptly slammed the decision:
CHOICE, Consumer Action Law Centre, Financial Counselling Australia and Financial Rights Legal Centre have responded to the Government’s announcement that it will remove credit protections for borrowers saying right now what people need is more income, not more debt.
Government’s proposed reforms will remove bank responsibility to customers, opening up new opportunities for banks to aggressively sell debt.
Now it has been revealed that Australia’s financial regulators were not consulted on the move:
Financial regulators weren’t asked for their assessment on the scrapping of responsible lending laws before the government’s surprise announcement, according to testimony, leaving the head of a leading regulator to learn about the controversial decision in media reports.
Commissioners from ASIC and APRA were questioned about the scrapping of responsible lending laws before a parliamentary committee last week, where they revealed they were given little-to-no notice and were not asked for their views on the decision.
“When was ASIC first informed of the government’s intention to scrap responsible lending obligations?,” Dr Andrew Leigh asked, shadow treasurer for Labor.
“I’m the commissioner with responsibility for credit,” Sean Hughes replied, commissioner at ASIC, “and I was first advised when I read the Treasurer’s media statement through the media on the morning of 25 September.”
“That’s extraordinary,” Dr Leigh replied. “So you got no heads-up … You weren’t asked to provide any advice?”
This has the RBA’s and Treasury’s dirty fingers all over it.
Recall that these ‘institutions’ in July white anted ASIC’s “wagyu and shiraz” responsible lending suit against Westpac:
The Australian Securities and Investments Commission has decided not to appeal to the High Court its case against Westpac for alleged responsible lending failures, after the heads of the Reserve Bank of Australia and Treasury both privately warned it would exacerbate economic uncertainty caused by COVID-19…
Then in August, RBA Governor Phil Lowe told the Standing Committee on Economics that Australian mortgage restrictions had become too strict and were constraining the economy:
“The pendulum has probably swung a bit too far to blaming the bank if a loan goes bad, because the bank didn’t understand the customer; if it had done proper due diligence—this is the mindset of some—the bank would never have made the loan. So some of the banks have had this mindset, ‘Well, we can’t make loans that go bad'”.
This came despite the Hayne Banking Royal Commission explicitly recommending that Australia’s responsible lending laws remain:
If there were concerns around complexity, then the solution was not to trash the responsible lending laws altogether. Rather, the government should have engaged in stakeholder consultation to redraft the laws into a streamlined (less ambiguous) form that maintains the current spirit and intentions.
The lessons of the Hayne Royal Commission and the Global Financial Crisis should not have been so easily discarded.
The last thing Australia needs is for banks, free of regulatory accountability, to begin lending to anybody with a pulse and creating a US-style subprime mortgage bubble with potential to take down the financial system and economy.
Sadly, that’s the sort of irresponsible policy you get in Australia, which increasingly resembles the property equivalent of a narco state.