Context: Proposed consumer credit reforms

• On the 25 September, the government announced plans for the proposed overhaul of consumer credit laws, including plans to roll back what it considers to be overly prescriptive responsible lending obligations. The object of the proposed changes is to improve the flow of credit and support the nation's economic recovery. You can find our summary here.
• On 4 November, the government released a package of draft legislation for consultation, proposing to implement these changes. You can find our summary of the proposed reforms here.
• Broadly (if enacted) the proposed changes will mean that from 1 March 2021:
  • Responsible lending obligations in Chapter 3 of the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act) will only apply to: a) small amount credit contracts (SACCs); b) 'SACC-equivalent loans' (low limit credit contracts) provided by ADIs; and c) consumer leases.
  • This means that ADIs will no longer be required to comply with the responsible lending obligations NCCP Act (except 'SACC-equivalent loans). ADIs will continue be required to comply with the prudential standards set and enforced by the Australian Prudential Regulation Authority.
  • Non-ADI credit providers will need to comply with new non-ADI lending standards, modelled on 'key elements' of APRA's prudential standards applying to ADIs.
  • All credit assistance providers will need to comply with the 'best interests' obligations legislated for mortgage brokers.
• Consultation on the proposed reforms closed on 20 November.

Consumer groups have called for the changes to be abandoned

Consumer groups - Consumer Action Law Centre (Consumer Action), Financial Rights Legal Centre (Financial Rights), Financial Counselling Australia, Consumer Credit Law Service (WA) Inc (CCLSWA), CHOICE, Uniting Communities Consumer Credit Law Centre SA (CCLCSA), Care and Consumer Law Centre ACT (CARE ACT), NILS Network of Tasmania, Indigenous Consumer Assistance Network and Redfern Legal Centre – have released their submission to the consultation on proposed changes to consumer credit laws.

The submission argues strongly against the proposed changes on the basis that they are contrary to the interests of consumers. The submission explains,

'We normally provide constructive feedback in these consultations, aimed at improving the impact of planned changes to policy and law. Unfortunately, we are unable to say anything positive about the Government’s plans. The repeal of responsible lending obligations for almost all forms of consumer credit is the most short-sighted, poorly thought out policy proposed by a government in credit or financial services in recent memory. The Draft Materials are fundamentally defective, and no number of amendments can solve this'.

Accordingly, the submission recommends that the government 'abandon this legislation and retain responsible lending laws in their current form'.

The remainder of the submission outlines 'the range of problems that would result' if the changes were enacted, with case studies to illustrate. Appendix A of the submission includes a number of additional case studies that illustrate the importance of responsible lending.

Public campaign launched to block the changes

Separately, 125 consumer advocacy groups have launched a petition urging parliamentarians to block the proposed changes if/when the legislation is introduced.

The group argues that the proposed changes will weaken necessary consumer protections and see consumers worse off. The group also argues that rolling back responsible lending obligations will increase the risk of the sorts of conduct issues highlighted by the Hayne Commission.In addition, the group argues that the proposed changes run contrary to the Hayne Commission's recommendation calling for existing responsible lending laws to be enforced.

According to consumer groups, national polling supports blocking the changes with most people polled agreeing that lenders should be required to check prospective borrowers' ability to repay a loan before approving it – 79% of people polled agreed that banks should be required to always check a customer's ability to repay before offering a mortgage.

[Sources: Treasury consultation: Consumer Credit Reforms 23/11/2020; CHOICE petition; CHOICE Media release 24/11/2020]