Aussie backs Treasurer in fight for sober lending

Mr Frydenberg expressed concern over the impact of tighter credit conditions on households and the broader economy.  

“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 comments have been welcomed by Aussie Home Loans CEO James Symond, who said that he’s concerned that some borrowers are being unnecessarily “knocked back” by lenders.

Mr Symond added that despite growing evidence of a recovery in the housing market, some economic indicators remain flat, pointing to relatively weak property listings and subdued construction activity.

“This is why Aussie supports the Treasurer’s comments, [to] help Australians get back into the market,” he said.

Mr Symond also pointed to a recent study commissioned by Aussie, which revealed that a majority of Australians lacked confidence both in the housing market and in their prospects of securing a home loan.

According to the research, just one-third of Australians are more confident about purchasing a home than they were five years ago, with approximately 29 per cent stating that they have been discouraged from buying a property because they find the home loan process difficult to navigate.

“This is why it is so important for the regulators to act to restore Australians’ confidence in the housing market and their ability to buy property,” Mr Symond concluded.

Mr Frydenberg and Mr Symond’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 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 Nye 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.

 [Related: Big four expected to demand clarity from ASIC]