Senate responsible credit bill due to vote this week

The Australian Senate will debate some of the most important reforms to Australia’s lending rules this week, after the Senate Committee on Economic Legislation recommended changes to the National Consumer Credit Protection Act (NCCP).

The Committee, which has a majority of Coalition members, voted in favor of the party to recommend the reforms, which represent some of the most significant changes in the lender / borrower relationship since the tightening of regulations following the crisis Global Financial (GFC) late 2000s. Labor and Green senators on the committee voted against and issued dissenting statements.

The reform will likely be put to a vote this week. If the party lines hold, it will revert to cross votes in the Senate to decide whether it passes.

At the heart of the problem are responsible lending obligations. Currently, the onus is on lenders to verify borrowers’ suitability, a decision that was made after the wave of defaults that precipitated the GFC.

If the reforms were passed, the focus would be on lenders, who would now be able to take borrowers at face value on the basis of the information they provide, without the need for further investigation.

The new reforms were proposed with the aim of helping credit flow more freely in the economy and allowing loans to help lift Australia out of the COVID-19-induced crisis. They would also shift the burden of consumer protection away from banks and onto regulators such as AFCA.

The Hayne Royal Commission recommendation 1.1 in the banking sector explicitly warned against changes to the NCCP law and gives the lender the task of dealing with suitability to receive a loan, which the Greens mentioned in their declaration of dissent.

Additionally, the Australasian Consumer Law Roundtable, a group of legal scholars, today published an article based on a submission made to the Committee in February.

“Even after Hayne, the banks continue to fight their obligations and have not yet shown that they have changed their ways, ”he said.

“Consumer protection in finance is important – it helps strengthen financial stability. The abusive, predatory and irresponsible lending practices that led to the subprime mortgage crisis in the United States make this clear. The government’s suggestion that it is right for borrowers to take responsibility for their own situation does not hold water.

“No matter how diligent their inquiries are, consumers often lack the expertise to understand their situation and what financial products are best for them. For many, almost all of the expertise belongs to the banks. “

The majority group in the Senate said it was “concerned about evidence that the regulatory framework has prevented consumers from accessing credit in a timely manner to buy their first home or to obtain a grant under the HomeBuilder program.”

With soaring home loans and house prices, record levels of borrowing have been recorded since last year’s lockdowns, with low interest rates and high consumer confidence fueling a boom.

If the reforms were adopted, the flow of credit would increase further and, theoretically, continue the continued growth in house prices, as a barrier would be removed that currently prevents a consumer subsection of the market.

Industry figures have spoken out in favor of these changes. “This reform means less time and paperwork for borrowers, no less control for lenders,” said Anna Bligh, CEO of the Australian Banking Association. “It means less reliance on obscure discretionary spending when appraising the loan and more attention to the factors that matter, like spending income and debt.

“Banks know from decades of experience that Australians are reliable and responsible borrowers. They adjust their lifestyles to pay off their loans, and when things go wrong it is rarely, if ever, due to spending habits, but more to major life events that affect income, such such as job loss, illness or divorce. This is why this change makes sense.

About James Almanza

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