Treasurer calls for ‘common sense’ in lending space

“Common sense dictates that a sensible balance needs to be struck because an unduly restrictive application of these obligations can do as much harm as an overly lax one,” he said.

“Clearly, the risk that the provision of credit may cause substantial hardship to some should not result in a significantly reduced ability to access credit by the vast majority of consumers.

“It is in everyone’s interest that the aspirations of hard-working families are not collateral damage in this regulatory process.”

The Treasurer highlighted the need for a greater emphasis on personal responsibility and backed a principles-based application of responsible lending guidance that provides institutions with greater flexibility.  

“The values of personal responsibility and personal accountability must remain central to our society, and if the pendulum swings too far in the abrogation of these values, then it will inevitably reduce the availability of credit and increase its price,” Mr Frydenberg added.

“Should responsible lending laws be applied too stringently, they will also negatively impact consumer behaviour, with consumers more likely to remain with their current provider than go through the red tape burden associated with looking for alternatives.”

Mr Frydenberg’s remarks have come amid continued uncertainty in the regulatory environment, with the Australian Securities and Investments Commission (ASIC) currently in the process of reviewing its responsible lending guidance (RG 209).

The regulator has concluded two phases of consultation with industry stakeholders, which included public hearings held in Sydney and Melbourne, and is expected to publish its new guidance before the end of the calendar year.

ASIC is also embroiled in a Federal Court dispute with Westpac regarding alleged breaches of the National Consumer Credit Protections Act, relating to Westpac’s application of the Household Expenditure Measure (HEM) in its assessment of home loan applications.

In September 2018, Westpac admitted to breaches of responsible lending obligations when issuing home loans to customers and agreed to pay a $35-million civil penalty to resolve Federal Court proceedings under the National Credit Act.

However, the Federal Court was tentative in its approach to the matter.

Justice Perram had sought a friend of the court to consider whether the Westpac case even constituted a breach of the NCCP (reportedly stating that “there is no fact before [him] that any unsuitable loans were made”).

Following his review of the case, Justice Perram judged that a lender “may do what it wants in the assessment process”, noting that other provisions of the NCCP impose penalties if lenders make unsuitable loans as a result of that process.

ASIC has since announced that it would appeal Justice Perram’s decision to the Full Federal Court of Australia to address “uncertainty” caused by the verdict.

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