Responsible lending rules could be rolled back soon, after a government report warned that the approval of mortgage loans was taking too long and too drastic.
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The findings are in stark contrast to calls from consumer lawyers consumer to abide by the rules, despite concerns that the changes would allow borrowers to take out loans they could not afford, while banks were not fined for breaking existing responsible lending laws.
Experts also warned the change would continue to push up rising real estate prices.
The laws were introduced in 2009 after the global financial crisis and require banks to ensure that a loan is not unsuitable for a borrower, and to verify the borrower’s financial situation.
They came into the picture during the royal commission on financial services, when case studies emerged of borrowers unable to pay their loans, and the commissioner advised that the laws be enforced as they are.
Reports surfaced as nervous bankers made additional inquiries about customer spending to avoid making bad loans that would attract even more attention – right down to the rejection of applications because borrowers spending too much on Uber Eats.
Plans to settle the laws were announced by treasurer Josh Frydenberg in September in an effort to increase credit flow to households and businesses as the economy recovers from the COVID-19 pandemic.
Since then, the value of new home loans has hit record highs, reaching $28.8 billion in January, about 44.3 percent higher than a year earlier, based on ABS figures.
The federal government believes a well-functioning credit market is essential for economic growth and pandemic recovery, an argument made by the Senate Economic Legislation Committee in a report released Friday in support of an amendment to the laws.
“The current consumer credit protection framework may be too prescriptive,” the report said.
“The committee is concerned about the evidence that the regulatory framework has prevented consumers from accessing credit in a timely manner to buy their first home or to receive a grant under the HomeBuilder scheme.
“The committee is also concerned about the invasive and burdensome nature of the investigation and verification processes required under existing responsible lending obligations.”
While commenting on the reforms, the committee considered that the change would not undermine consumer protection and that the responsible lending principle was embedded in the wider regulatory framework. It suggested raising awareness of the dispute resolution services available through the Australian Financial Complaints Authority.
Labor senators disagreed, saying the need for responsible lending laws was confirmed by the royal commission on financial services.
They pointed to evidence from Alan Kirkland, CEO of consumer group Choice, who said more than $350 million in compensation had been paid to consumers after banks broke the laws, adding that it wouldn’t happen if the laws were changed.
Mr. Kirkland also told the investigation that AFCA was not a law enforcement agency and existed to resolve relatively minor disputes, unlike corporate regulator ASIC, which can get a bank to set up a large-scale recovery plan if necessary.
Labor also noted evidence from the Australian Banking Association that credit was entering the economy and that the ABA did not think the current rules were stifling credit.
Choice and more than 120 organizations called on the government to save ‘safe borrowing’ in an open letter to the House of Representatives last year.
The consumer advocacy group released an open letter to the federal government last week about proposed changes to the loan laws, which it says would end secure borrowing.
It is signed by 33,000 Australians and 125 community groups.
In the letter, Choice said changes to the law would mean people would be worse off because they could get loans they can’t afford to repay and said laws contradict the findings of the royal commission on finance. services, which encouraged enforcement of secure lending rules.
“If this law is passed, people will pick up the pieces for years to come, while banks and other lenders will be given a blank check to take advantage of aggressive lending. We need you to stand up for our community and protect safe loan laws,” the letter reads.
The Financial Rights Legal Center has: previously compared the change to “throwing an umbrella in a rain shower because you don’t get wet”.
Mortgage brokers have previously proposed Delays in home loan approval are due to a large number of applicants, rather than strict loan criteria.
The bill could be voted on as early as this week, but would need the support of Senate committees to pass.
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