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The government’s proposed changes to responsible lending laws will expose disadvantaged Australians to predatory lenders and set the country up for a “household debt disaster”, an alliance of consumer rights groups has warned.
A collection of nine organisations – including the Consumer Action Law Centre, the Financial Rights Legal Centre, Choice and major Indigenous legal and consumer groups issued a damning joint submission on Thursday, urging the Coalition to abandon its plans to tear up responsible lending laws.
The proposal, the groups say, will leave responsible lending laws in a “state of disarray”. The system would morph into a “complex and ineffective regulatory regime that would remove critical consumer protections and legal rights, further tipping the scales in favour of banks and lenders”.
“The bill will result in harm to individuals, families and communities, and set Australia up for a household debt disaster as we seek to recover from the Covid-19 crisis,” the submission says.
Responsible lending obligations were introduced in 2009, through the National Consumer Credit Protection Act, which attempted to stop risky lending by the banks.
The banking royal commissioner, Kenneth Hayne, recommended that the law remain unchanged in his report two years ago.
The alliance of consumer rights groups say the Coalition’s proposal contradicts the royal commission’s findings, lacks any evidence or clear policy rationale and has been accompanied by “inadequate” consultation for a change of such substance.
“This bill would only serve to extend the impacts of the economic downturn – it risks prolonging or worsening the financial hardship of Australians through bad debt in the wake of the Covid-19 pandemic, just as government supports such as jobkeeper and jobseeker come to an end.”
The government’s bill also makes significant changes to the laws governing small amount credit contracts, usually referred to as payday loans, and consumer leases.
More than four years ago, the Coalition had promised to strengthen protections to prevent predatory behaviour by payday lenders. Those changes were based on a 2016 review, which found payday loans were being inappropriately handed to low-income and vulnerable Australians, in some cases trapping them in high-interest, high-fee contracts that resulted in cycles of debt.
But the industry lobbied hard against the planned crackdown and the government repeatedly delayed action, prompting accusations it had shelved the plan.
The consumer groups say the changes now proposed are weak and constitute a broken promise.
“Key ‘protections’ in the bill are merely watered-down versions of recommendations of the SACC review, with some of these changes directly contradicting specific findings of the report,” the groups warned. “The protections in the bill are not sufficient and will continue to see people pushed into financial hardship through expensive, predatory payday loans and consumer leases.”
Fiona Guthrie, the chief executive of Financial Counselling Australia, said financial counsellors were shocked by what was being proposed.
“If these laws are scrapped, financial counsellors will see more people drowning in debt with all that entails: greater risks of suicide, more bankruptcies, more family violence and family breakdown, more homelessness and the negative flow on effects to people’s mental and physical health,” Guthrie said in a statement.
The Guardian revealed last month that more than half of the recommendations made by the banking royal commission have either been abandoned or are yet to be fully implemented.
That is despite the treasurer, Josh Frydenberg, vowing to take action on all recommendations when he received the report two years ago.
Source: The Guardian
Keyword: Australia risks ‘household debt disaster’ if responsible lending laws scrapped | Banking