Treasury: Axing responsible mortgages “could hurt borrowers”

As we know, the Morrison Government is seeking to abolish responsible lending rules, in contravention of the Hayne Banking Royal Commission, which recommended these rules remain in place:

Under the consumer credit amendment bill, which was introduced in December, responsible lending obligations will essentially be removed from the national consumer credit rules, with the only exception being small-amount credit contracts and consumer leases, where enhanced obligations will be introduced.

Consumer groups have already slammed the proposed reforms, claiming they would make it easier for lenders to take advantage of borrowers.

An assessment by the Australian Treasury has come to a similar conclusion, claiming the changes have the potential to increase the risk of consumer harm:

As well as shifting responsibility for bad loans onto borrowers, the reforms, which make up the proposed new national consumer credit protection rules, could lead to some borrowers getting lumped with loans too big to service, leaving them overextended, according to the document prepared by Treasury.

In addition, the reforms, which are due to commence from March, could result in lenders taking on more risk, Treasury’s regulation impact statement released under Freedom of Information rules said.

“Without every application subjected to the current intense inquiry and verification process, there is the potential for some consumers to get extended credit they previously would not have received,” Treasury said of the government’s move to remove responsible lending obligations.

“The imposition of obligations at the portfolio level may (also) lead to lenders taking on more risks — at the margin — in lending, which can lead to more instances of consumer harm,” it warned…

“Under (the reforms), consumers will need to take greater responsibility, in particular noting the potential risk they could face through receiving unsuitable credit, if they provide incorrect or incomplete information to a lender.

“Consumers may underestimate or misunderstand their repayment capacity, leading to them obtaining credit they may otherwise not have obtained,” it said in the impact statement.

Remember, neither of Australia’s financial regulators, ASIC and APRA, were consulted on the reforms. Instead, the decision to axe responsible lending reforms was a slimy deal between the Morrison Government and its backers in the banking and property industries.

Labor, The Greens and the Senate cross-bench must unite to block the Coalition’s proposed policy sabotage. The Hayne Royal Commission’s number one recommendation must be upheld.

Unconventional Economist
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Comments

  1. It wont get through. This govt is only about putting forward the reforms that are universally acceptable and therefore “easy” without them lifting a finger. They’re more about throwing around the brain-farts first based on one captured segment of the nation and then back tracking later. Refer to the numerous return of the international students announcements that got kaboshed when it all got too hard…. The home builder thing only got through because no one batted an eyelid.
    They’re lazy and this is just about getting all too hard.

  2. Under the consumer credit amendment bill, which was introduced in December, responsible lending obligations will essentially be removed from the national consumer credit rules, with the only exception being small-amount credit contracts and consumer leases, where enhanced obligations will be introduced.

    So if you want a little loan we need to make sure we are responsible, but if you want a huge loan we don’t care if you can afford it….

  3. Anything that helps keep house prices from rising, won’t be passed.

    “GDP growth and House Price growth” is the winning mantra.

  4. Baltic BalzamMEMBER

    I’m cheering for irresponsible lending.
    I’m 40 and looking to buy atm. However the lenders are playing hardball with me as I have a new born and a 5 year old. Given fixed rates are lower than renting, it is stupid that lenders view me as a credit risk. My wife may be out of work for another year or so but I can put forward a decent deposit and we both have a solid working background. $600k is the maximum I can borrow! Not much help in Melbourne, so heading to SEQ.

    • Find a better broker, went through the same late last year and banks were a pain in ass…similar situation and sitting in my new house now. Rarely check MB doom anymore….too busy drilling holes in the wall!