Former Liberal leader John Hewson has slammed the Morrison Government’s proposed scrapping of responsible lending laws claiming it could create a “debt monster” that would be detrimental to the economy over the longer-term:
“I think the basic premise is wrong,” Dr Hewson told The New Daily.
“Lending might stimulate some short-term spending, but in the end it has to be serviced – you are stoking a debt monster”…
[Hewson] noted the Hayne royal commission uncovered a “culture of greed” that encouraged banks to knowingly overextend their customers through “fudging lending requirements and so on”.
“It’s just a short-term fix to make the recovery look better than it really is. It kicks the problem down the road and many people have already got a level of debt they can’t afford,” Dr Hewson said.
“It doesn’t make sense. [The government] is banking on hope.”
Consumer groups are also angry about the scrapping of the laws. When the policy was first announced, CHOICE, Consumer Action Law Centre, Financial Counselling Australia and Financial Rights Legal Centre released a joint open letter opposing the reforms. And now Consumer Action Law Centre CEO Gerard Brody has doubled-down claiming the changes would be a “debt disaster” for households:
“It’s going to prolong the downturn because households who are more overindebted are going to be at greater financial risk and not get on top of things and help the economy get back to normal,” Mr Brody said.
“People at the margins are the ones who will be pushed into borrowing because they’ve lost their jobs or hours worked.
“And particularly as income support is wound back, people will turn to credit because they need it to survive.”
Recall that the Morrison Government’s announced scrapping of the responsible lending rules directly contradicted the key recommendation of the Hayne Banking Royal Commission, which only handed down its findings last year:
It was also revealed last week that the announcement to scrap the rules were made without consultation with Australia’s financial regulators:
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?”
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.