At the close of last week, the government revealed it intends to simplify the current “overly prescriptive, complex and unnecessarily onerous” process of securing credit to contribute to the economic recovery of the country.
As part of this effort, the government has proposed doing away with responsible lending obligations, with minor exceptions, and replacing the current practice of ‘lender beware’ with a ‘borrower responsibility’ model as lenders would be allowed to rely on the information provided by borrowers in assessing their suitability.
While the industry has broadly welcomed the news, Connective executive director Mark Haron has drawn attention to the primary – and potentially debilitating – issue he sees with the proposed reforms.
“It’s all well and good for government and, to a certain extent, regulators to be bringing on these changes but if AFCA, who seems to be the ultimate decision-maker on whether or not someone has done right or wrong by a consumer, does not take the same position as government, this all could change nothing,” Haron said.
“If brokers and lenders know they’re going to be beholden to AFCA requirements which are different to the regulatory requirements, then lenders will continue to lend to that higher standard and brokers will make sure to adopt practices that keep them out of trouble with AFCA as well.”
To illustrate his point, Haron referenced guidance APRA introduced to banks last year.
“APRA effectively said, ‘If you’re refinancing a loan, and nothing has changed – it’s the same loan amount and the client’s position has held steady with their job and such – then there’s no necessity to apply the responsible lending lens again',” he explained.
“However, that wasn’t taken up by the lenders in any major way, shape or form because they felt they’d be in breach of their obligations from an ASIC perspective and they felt it could leave them open if there was an AFCA claim as well.”
While Treasurer Josh Frydenberg is hoping to see the lending reform finalised by 1 March 2021, Haron is sure the consultation process will include much discussion with industry as well as a fair bit of lobbying from consumer groups.
“This issue [regarding AFCA] is going to need to be addressed, and we will certainly be raising our concern with government in the coming months,” Haron finished.
