As we know, the Hayne Banking Royal Commission’s first recommendation was to maintain responsible lending laws:
The Hayne Royal Commission came to this recommendation after observing multiple cases of predatory lending over its 12 month deliberation.
Despite this recommendation, Treasurer Josh Frydenberg is currently seeking to abolish responsible lending laws following pressure from the banking industry, who claim such rules are a handbrake on credit. Never mind that new mortgage commitments are running at record high levels, which completely debunks their claim.
Bizarrely, RBA Governor Phil Lowe also tacitly supported the abolition of responsible lending rules, last year telling 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'”.
The RBA and Treasury also directly thwarted ASIC’s “wagyu and shiraz” responsible lending case 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…
Nor were Australia’s financial regulators, ASIC and APRA, consulted on the decision to axe responsible lending rules:
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…
“I’m the commissioner with responsibility for credit,” [ASIC’s Sean Hughes said], “and I was first advised when I read the Treasurer’s media statement through the media on the morning of 25 September.”
Thus, Josh Frydenberg has worked hand-in-glove with the banking industry, the RBA and Treasury to undermine Australia’s financial regulators by scrapping responsible lending rules.
Now Frydenberg is looking to neuter ASIC altogether, appointing former banking lawyer Joseph Longo as chairman of ASIC and directing him to support the economic recovery from the pandemic rather than enforcing financial system conduct:
…the “wagyu and shiraz” responsible lending case against Westpac… became a particular point of friction between Frydenberg and [former ASIC chairman James] Shipton, along with perceived instances where he believed the regulator was standing in the way of Treasury’s attempts to drive the economic recovery out of the COVID-19 recession…
Frydenberg made it clear the direction of ASIC would be changing dramatically from the tougher stance foisted on it by the Hayne royal commission just three short years ago.
A new government statement of expectations will “make clear the government expects ASIC to support Australia’s economic recovery from the COVID-19 pandemic”.
So basically, the Morrison Government wants to turn ASIC into a paper tiger regulator. Pumping as much cheap credit to sub-prime borrowers as possible is now the government’s priority and ASIC must turn a blind eye. Responsible lending be damned!
Kenneth Hayne must be watching on in disgust. What was the point of conducting the banking royal commission when its number one recommendation (among others) is being directly contravened by the government?