Australian loan laws are set to be loosened but financial counsellors fear consumers will be exploited
Financial counsellors are in a race against time to stop the relaxing of laws that will make it easier to take out a loan.
Responsible lending laws were introduced by Labor in the wake of the global financial crisis but were largely ignored by the banks until the banking royal commission.
The Government now wants to reform the National Consumer Credit Protection Act — once again making it easier for banks to hand out loans — with the aim of boosting borrowing.
But financial counsellors are worried there will be an avalanche of demand for their services if the Government gets its way, arguing there are too many desperate families in danger of drowning in debt.
Financial counsellor Dianne Dejanovic said thousands of borrowers find themselves in financial distress every month.
“This is not just about money, this is people’s lives,” she said.
“This is about their mental health, their wellbeing, their relationship issues — it goes far beyond money.”
The Government hopes that by relaxing lending laws, borrowing will rise, and in turn spending, with the ultimate goal of creating more jobs.
Deep debt can be a ‘dark’ place to be
Lauren sank so deeply into debt, she found herself in a very dark emotional place.
“I remember that it was some of the darkest times that I was dealing with this debt and trying to work out a solution,” she said.
“It got really dark.”
Lauren is not her real name, and she asked to remain anonymous because she still feels shame about her debt binge.
It began by maxing out her credit card out in her early twenties, and by her late twenties it had spiralled out of control.
She said the banks encouraged her to borrow more and more.
“It wasn’t a sudden thing but it did grow over time,” she said.
“Something as simple as a ‘buy now pay later’ credit for flights that might have been $2,000 and then being offered an $11,000 credit card, with no income checking.
“Had I been declined for credit I simply couldn’t afford, I might have changed my circumstances.”
Campaign to resist changes
The Consumer Action Law Centre’s director of policy Katherine Temple is helping direct a coalition of partners including Financial Counselling Australia to stop the legislative changes in their tracks.
“This proposal from the Government is going to hurt individuals and families,” she said.
“It’s going to hinder our recovery and it flies in the face of the banking royal commission.”
The aim of the campaign is to convince crossbenchers to vote the changes down in the Senate.
“We help thousands of people in the sector every year who are struggling with unaffordable debt, and that is only going to be turbocharged if these changes go ahead.”
Federal Treasury rejected this.
It told RN Breakfast the reforms introduce new protections for consumers, including capping the cost of some products, as well as capping the proportion of income a consumer can devote to some products.
The Government has also introduced a number of changes including banning, or amending, a credit product where that product has resulted, or is likely to result, in significant consumer detriment.
Ms Dejanovic said the Government is forgetting the most vulnerable in society, who may not be able to burrow through complex product disclosure statements.
“When a borrower goes to a lender, you’ve got to realise there’s a lot of people from non-English speaking backgrounds,” she said.
“There’s people who may not be too financially literate.
“Even just the general person in the street, you go to a lender, we trust the banks, we trust these financial institutions.
“We go there, we ask them, ‘are we eligible?’ We expect them to do the checks and balances.”
Crossbencher is wary of loosening lending laws
Independent senator Rex Patrick is still on the fence as to whether or not he will support the changes to the National Consumer Credit Protection Act.
“My approach to this is one of nervous caution,” he said.
“The Treasurer has basically put up an argument that we need to do this post-COVID to allow money to flow more freely.
“I need to be convinced that this measure would do that.
“I also need to be convinced that consumer protections would still be in place.
“It’s no good for anyone, neither the lender or the borrower, if people overreach.”
But borrower Lauren warns that if the responsible lending laws are loosened, consumers will be significantly worse off.
“I feel that with COVID and the current situation, people will get really desperate and backed into a corner, and people will look for easy solutions,” she said.
“If these responsible lending laws are removed, it is never going to benefit the consumer.
“I’m deeply worried for a lot of people.”