Opinion: Responsible lending law repeal will undo good
First published in the Herald Sun, 8 February 2021.
In the two years since the Hayne Royal Commission Final Report while the Federal Government has made some changes to strengthen consumer protection, it is also proposing to dismantle responsible lending laws which are a fundamental cornerstone of the entire system. This will leave individuals and families at risk of exactly the type of conduct that led to the Royal Commission in the first place.
In Hayne’s Final Report, he pointed to failures of culture, governance and holding institutions to account. Removing responsible lending laws will allow lenders to have their own credit assessment and approval processes, rather than meet legal standards. This reduces lender accountability for ensuring every loan is suitable and repayments are affordable, and risks returning us to the greedy sales cultures of the past.
Repealing the laws will mean regulators will have less power to hold lenders -both big and small- to account as both civil and criminal penalties are being removed. Individuals too will lose their right to take legal action for compensation when there is a breach of lending standards, exacerbating the power imbalance between banks and their customers. The Hayne Report said that even with the laws as they are, too often financial entities that broke the law were not properly held to account – if the Government’s proposal is enacted, it is unlikely that they would be held to account at all.
Insurance is one area where there has been some improvement since the Royal Commission– there has been legislation to apply unfair contracts to insurance, reform funeral insurance, ban the hawking of insurance and superannuation and reign in the sale of junk add-on financial products. But the devil is in the detail, and some of these reforms are still to be worked out.
There are also a whole range of recommendations from the Royal Commission that remain “in progress” or haven’t been fully implemented. For example, Hayne recommended that the sale of credit in car yards and stores should be brought into the credit licensing framework, but this has yet to take place. This lets the sellers of often higher-risk and costly credit off the hook – they get rewarded when the sale is made, whether it leaves the customer in hardship, or not.
The Royal Commission was a watershed moment in the history of the Australian banking and financial services sector. Unfortunately, I worry that we will see consumer harm and losses persist because of a failure of the Government to implement the full suite of reforms.