Responsible lending law reform needed urgently

Consumer groups are extremely disappointed in ASIC’s decision not to appeal the Full Federal Court’s decision in the Westpac case to the High Court of Australia.[1]

The Financial Rights Legal Centre (Financial Rights), Consumer Action Law Centre (Consumer Action), CHOICE and Financial Counselling Australia (FCA) had supported the view, also enunciated by Commissioner Hayne in the Banking Royal Commission, that the current responsible lending laws require lenders to not only make reasonable inquiries and verify a borrower’s actual financial situation, but also take that information into account in their lending decisions.

“It is now clear that law reform is urgently needed, said Financial Rights CEO Karen Cox.

“The Full Federal Court decision suggests that banks do not have to have regard to people’s actual expenses when they lend. Worse, the court found that the law as it stands leaves it open for the lender to decide what inquiries it will make, what steps it will take to verify the applicant’s financial situation, and how it will use the results of this exercise to determine whether a loan is likely to be unsuitable. This degree of latitude has historically allowed lenders to make unsustainable loans which set people up to fail.”

Responsible lending laws were introduced in response to Australia’s last economic crisis (the GFC). Proper responsible lending will assist with rebuilding a strong and resilient economy.

“Providing people with unaffordable credit will do nothing to hasten the economic recovery from Covid-19. It will only lead to vulnerable people suffering greater harm and distress in the long run. As Australia seeks a way out of the current economic crisis, now is when we should be doubling down on the lessons learned in the GFC and lend responsibly.”

Consumer Action Chief Executive Gerard Brody said:

“In the recent Banking Royal Commission, Commissioner Hayne chose not to recommend any changes to responsible lending laws in his final report in part on the basis that we needed to let the Westpac case play out.

“However in doing so Commissioner Hayne said that “If the court processes were to reveal some deficiency in the law’s requirements to make reasonable inquiries about, and verify, the consumer’s financial situation, amending legislation to fill in that gap should be enacted as soon as reasonably practicable.[2]

“Leaving the law as it is means that we go back to pre-GFC lending standards—the Government needs to legislate to fill the gap.”

Alan Kirkland, CEO of CHOICE said:

“ASIC did the right thing to take action against Westpac in the first place, and appeal to the full bench of the Federal Court. It is the role of the regulators to enforce the law as it was intended to operate. Given the disappointing decision of the full Federal Court, it is unfortunate ASIC has decided not to take this matter to the High Court.”

Fiona Guthrie, Chief Executive of Financial Counselling Australia said:

“At a time when record numbers of people are in financial hardship and have deferred their home loan repayments, now is not the time for looser loan assessment processes that do not adequately assess capacity to repay. We are not arguing for overly-cautious lending, or limited lending – just responsible lending. Let’s not set people up to fail.”



CHOICE Media Contact: Jim Hook, 0430 172 669

Financial Rights Media Contact: Drew MacRae, 0404 604 978

Consumer Action Media Contact: Mark Pearce, 0413 299 567



[2] Page 57 Final Report Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry VOLUME 1

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