RLO repeal would reduce ‘policy creep’: CAFBA

During the debates, which extended into the evening, several Labor MPs suggested that the changes the bill is proposing would negatively impact business lending.

Labor Member for Gilmore, Fiona Philips, stated her belief that, as well as reducing consumer protections, another “concerning change in this bill is the way it deals with business loans”.

She said: “The changes will exempt any business lending from protections, regardless of the proportion of the loan that is for business purposes. Right now, a loan would have to have the predominant purpose for the business, but that bar has been removed. This just opens the door for even more exploitation of families through sham business loan,” she said.

Labor MP Andrew Leigh, Member for Fenner, similarly told the House of Representatives: “There’s going to be an exemption of business lending from protections, regardless of the proportion of the loan that is for a business purpose. That replaces the existing predominant purpose test designed to prevent avoidance. So, if you just ensure that a small share of the loan is for business purposes, you’ve taken yourself out of the financial protection regime.

“But we know that many small businesses operate as family businesses. Indeed, if anyone knows that, it should be the coalition, because they put the word ‘family’ in next to ‘small business’ in their portfolio and in the title of the ombudsman. They ought to know the way in which these loans can be intertwined. They ought to be standing on the side of small and family businesses,” he said. 

Speaking to The Adviser, the chair of the Commercial & Asset Finance Brokers Association of Australia (CAFBA) advocacy committee, David Gandolfo, argued that the repeal of RLOs would actually benefit business finance and small businesses.

Noting Ms Philips’ assertion, he said: “There are very severe penalties for presenting a consumer loan as a business loan in order to avoid the consumer regulations which would normally apply to it. It’s not a practice, not even a consideration, of bankers or brokers. Those protections are applied stringently by brokers and by lenders, and they have to be proven. So, we have to provide evidence that aligned that could potentially be an individual or not for business purpose, and that is for a business purpose declarations by the customer, by the customer’s accountant, there has to be some proof, i.e. historical tax returns, those sorts of things.

“It’s not just a matter of calling a consumer loan a business loan to bypass some regulation. It’s extremely difficult to do. There is no motivation to do it and there are extremely heavy penalties for doing it.”

Mr Gandolfo continued: “There are also protections for businesses under the Banking Code of Practice, there are protections under the ASIC Act and there are codes of conduct and practices which exist across the industry, which protect businesses as well.

“But applying consumer regulation, particularly around credit, will have detrimental impacts on businesses and it’ll effectively prevent business loans from happening because a business loan cannot be assessed in the same way that a consumer loan can be assessed,” he said.

Mr Gandolfo told The Adviser that the association is “an advocate for consumer protections”, highlighting that CAFBA has previously written 17 different submissions about the problems consumers face surrounding the point of sale exemptions, and noted that consumers would still be covered by the best interests duty, the Banking Code of Practice and APRA standards.

However, he said that he believed the current responsible lending obligations “went too far to the point where people weren’t even responsible for their own actions, they couldn’t make their own decisions and the banks were held accountable for everything that consumers do, when in fact, there’s a balance there”.

He concluded: “Responsible lending obligations were making it far too difficult for legitimate borrowers to borrow easily. 

“I’m hopeful that the relaxation of responsible lending obligations will, in fact, happen. The bill is there for a reason; it’s there to stimulate economic growth and to stop the difficulties that some borrowers have had with obtaining access to credit, particularly commercial borrowers, when there isn’t meant to be a consumer loan overlay impediment.

“The outcome that we want ultimately is, as we said in our submission directly to the hearing, that is, if nothing else, that there is a clear delineation between consumer and business finance.

“I’m hopeful that with the changes that are made, there will be no more of that policy creep and that grey area with commercial lending.”

Following several divisions, the bill was read a third time on Monday evening.

The bill will now continue through Senate.

[Related: CAFBA urges Senate to protect business lending]