'Defies logic': Consumer groups slam changes to lending laws
Consumer advocacy groups have slammed the government's plans to relax Australia's lending laws next month, saying the changes will expose vulnerable consumers to predatory lending practices.
In a move designed to stimulate the flow of credit through the economy, the slated changes would pare back the National Consumer Credit Protection (NCCP) by forcing consumers to determine if they are credit risk or not.
But this couldn't come at a worse time, say consumer advocates, with Aussies already swimming in debt.
"The removal of safe lending will put individuals and families at risk of all the aggressive lending practices that were rife before the responsible lending regime was introduced in 2009," says Financial Rights Legal Centre CEO Karen Cox.
"Our government wants free-flowing credit to reign at a time when unprecedented numbers of Australians have had to ask for loan deferrals amidst COVID-19. It simply defies logic."
Fiona Guthrie, CEO of Financial Counselling Australia, says the changes would pave the way for predatory lending practices.
"If these laws are repealed, it will be too easy for lenders to take advantage of disadvantage. Credit is a complex product," she says.
"People with low financial literacy, or who have mental health issues, or are affected by family violence or are in desperate circumstances, are particularly at risk of being exploited."
It's not just about the heightened capacity to accumulate debt, it's also about the lack of knowledge many consumers will have when doing it.
"These laws are very important to me as when I was just 18 years old a bank encouraged me to apply for a credit card. I had no employment and every couple of months the bank would call and offer me another $1000 on my limit," says Jo from NSW.
"I ended up owing $5000 that I did not have a hope of repaying."
The changes would also be hypocritical, according to advocates, given that the banking royal commission specifically warned against any reform of the NCCP Act that would reduce lenders' obligations in assessing the creditworthiness of borrowers.
"The royal commission was a watershed moment in the history of the Australian banking and financial services sector, but consumer harms and losses will persist and grow if responsible lending laws are repealed," notes Gerard Brody, CEO of Consumer Action Law Centre.
"Dismantling responsible lending laws has to be the most poorly thought out 'reform' in financial services history, as it will leave individuals and families at risk of exactly the type of conduct that led to the royal commission in the first place."
A petition to halt the changes, led by CHOICE and backed by more than 125 charities, has so far received more than 22,000 signatures.
"If anything, safe lending laws need to be strengthened," says CHOICE CEO Alan Kirkland.
"The stories we've heard from Australians show us there are too many falling through the cracks."