The government’s amendment to consumer credit law needs some changes to make it fit for purpose, including clarification of how APRA will oversee the conduct of lenders, consumers’ right of redress, the role of the Australian Financial Complaints Authority and the role of the Banking Code of Practice.
Speakers at yesterday’s Financial Review Banking and Wealth Summit said there were a number of loose ends that needed to be addressed for the government’s plan to be effective.
Treasurer Josh Frydenberg announced in September that the government will remove the responsible lending provisions from the National Consumer Credit Protection Act and rely on APRA’s prudential supervision to regulate lending practices.
Frydenberg said the current responsible lending provisions are “overly prescriptive, complex and unnecessarily onerous on consumers.”
A draft bill was circulated for consultation earlier this month.
A key element of the proposed change is that lenders will be entitled to rely on the information provided by borrowers, in the absence of reasonable grounds to suspect that information in unreliable.
This would replace the current “lender beware” approach with a “borrower responsibility” approach. In this way, lenders are expected to save time and cost in verifying information and focus on the speed of processing applications.
Lenders would no longer be liable (or their liability would be greatly reduced) if the information provided by the applicant is not true.
Higher risk products, including small amount credit contracts and consumer leases, will continue to be covered by responsible lending rules. The government also proposes to regulate debt management companies, requiring them to hold an Australian credit licence.
The chief executive of the Australian Banking Association, Anna Bligh, said consideration needed to be given to AFCA’s jurisdiction.
AFCA applies a broad fairness test in its adjudications. How the changes in the amendment interact with AFCA’s fairness test will have an impact but it is not at all clear what the impact will be.
Deloitte partner Karen Den-Toll said: “The thing I struggle with is that APRA regulates at the portfolio level. The consumer has to rely on AFCA. AFCA is the sleeper here.”
Bligh said the Banking Code of Practice also has an impact on lending practices, which might be at odds with the government’s intentions.
Under the Banking Code of Practice banks promise that they will meet the standard of a “diligent and prudent banker”. This is a responsible lending type of obligation, although less prescriptive than the provisions of the NCCPA. The proposed changes do not directly affect the code obligation.
Bligh said: “The Banking Code of Practice is enforceable in court. There may have to be some tweaking”
The chief executive of the Consumer Action Law Centre, Gerard Brody, criticised the amendment for taking away a consumer’s right to challenge a lending decision in the courts.
And without the threat of court action the incentive to apply good lending standards would be removed, Brody said.