Consumer groups lash irresponsible mortgage lending laws

Consumer groups have hardened in their opposition to the Morrison Government’s plans to abolish responsible lending laws, which were introduced in 2009. The Financial Rights Legal Centre has urged Senate crossbenchers to vote against any such move, while Financial Counselling Australia and CHOICE warn that scrapping the responsible lending regime would make it easier for lenders to take advantage of borrowers:

“We’re seeing record loans,” said Julia Davis, policy and communications officer at the Financial Rights Legal Centre.

“We’ve sold more loans in Australia than ever before in history … that doesn’t tell me that we need to ease responsible lending standards,” Ms Davis said.

Along with CHOICE and more than 120 organisations across the country, the centre called on the government to save “safe lending” in an open letter to Parliament late last year.

CHOICE chief executive Alan Kirkland’s initial opposition to the changes has only hardened since the draft amendment was released, and home lending continued to increase.

“There is no issue with access to credit, it’s clear that credit is flowing freely – particularly to owner-occupiers,” Mr Kirkland said.

Both Ms Davis and Mr Kirkland fear the changes could provide borrowers with access to credit they couldn’t afford, with banks facing no penalty if they acted in contravention of the existing responsible lending laws. It would also remove the right for borrowers to take legal action against lenders…

“Why in the world, in a time when people are struggling, … would we just put people at risk like this,” Ms Davis said…

Ms Davis compared unwinding responsible lending laws, introduced in 2009, to “throwing away an umbrella in a rainstorm because you’re not getting wet”. Even with protections in place, people had managed to find themselves loaded up with toxic debt, she said, citing hearings of the financial services royal commission.

Remember, the very first recommendation of the Hayne Banking Royal Commission was to maintain responsible lending laws:

This came after the Royal Commission documented extensive cases of criminal lending and behaviour.

Given neither of Australia’s financial regulators, ASIC and APRA, were consulted on the move.

The decision to axe responsible lending laws has the hallmarks of a grubby deal between the Coalition and its financial backers in the banking and property industries.

Labor, The Greens and the Senate cross-bench must block the legislation.

We cannot allow the findings of the Hayne Banking Royal commission to be usurped so brazenly.

Unconventional Economist
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  1. We cannot stop the findings of the Hayne Banking Royal commission being usurped so brazenly.

    Welcome to westminster democracy. Where you get to pick dictator every few years.

  2. Responsible lending laws are a reducing future capital gains for new marginal buyers. By restricting credit new first home buyers have their house price increases capped. By removing these laws, prices will be able to grow enabling equity buffers to build in the years ahead for new buyers. It’ll enable a few more years of price growth whilst immigration remains restricted. This is an essential policy until such time immigration can return to normal levels.

    • Jumping jack flash

      This, except immigration is only required if the debt isn’t growing fast enough and wage theft is required. Wage theft is a poor substitute for wage inflation, and it eventually destroys the economy (as we saw leading up to 2019). Never forget that nonproductive debt is inherently deflationary so it must grow at the correct rate to at the very least counter it, and ideally, exceed it.

      The ideal solution is to create enough debt so wages can [eventually] inflate to the levels required for everyone to be eligible for the next round of borrowing.

  3. Jumping jack flash

    These guys just don’t understand the New Economy and the new paradigm.
    Instantaneous riches with no effort, on the back of infinite debt attached to property, feeding back in via inflation in prices and then wages to maintain the Debt Engine’s operation.

    Also consider the positive environmental impact when we no longer need to manufacture or dig to earn money. We just borrow. Forever. We transfer our pile of debt to the next person to “pay it off” with a pile of debt that person takes on. Eligibility is key.

    “Responsible lending” just doesn’t come into it when median house prices need to reach close to $10 million each by 2050. How are we getting there? To get to $10 million, you first need to reach $2 million, then $5 million, and so on. We’re barely cracking the ceiling on $2 mil.

    • happy valleyMEMBER

      +1 Absolutely – Josh Rainbowberg will order irresponsible lending to the moon and the private banksters will dutifully and happily comply – the size of their bonus is all that counts.

      • Jumping jack flash

        It is in the banks’ best interests (no pun intended) to lend out as much as possible, especially these days of rock-bottom interest rates. Economies of scale, and all of that.

        • It gets to a point where its cheaper and less risky for the banks to buy the actual house and rent it out.

    • “To meet regulatory guidance, we will shortly be removing repayment pauses as an option for COVID-19 relief,”
      Isn’t that just a gentle reminder to APRA to remember to remove the regulatory guidance and change the goal posts in time for April?

      • thought of that too. Possible but I don’t think they need APRA to change anything. How did they do it until now?
        This is pump and dump process.
        I think banks will force sell as many houses as they can as long as house prices stay elevated and banks can get their money back. If prices start to fall near whatever red line banks have drawn covid holidays will be put in place again.
        And then let mugs use 100% of their super to borrow more again and repeat the process until banks clear their books.
        Yes, new buyers will end up holding the bag but that would be a problem for the new Bank CEOs to deal with.

        • Jumping jack flash

          Never be the greatest fool in a ponzi…
          I’ve just about received my enormous lump of debt to pass up the pyramid… Should know by the end of the week.