The government is trying to improve the flow of credit by removing the obligation banks and financial institutions have to not extend credit to people who cannot afford to pay it back.
Under the new laws, the consumers would make the decision instead of the financial institutions.
While making it easier for consumers to get credit, a group of nine consumer advocacy groups has released a joint submission to stop the bill from passing the Senate.
The group argued the proposed changes will expose disadvantaged Australians to predatory lending and set the country up for a “household debt disaster”, an alliance of consumer rights groups has warned.
“The bill flies in the face of the financial services royal commission final report, which recommended the responsible lending laws remain intact. Instead, the federal government is moving to overturn them,” Gerard Brody, chief executive of Consumer Action Law Centre, said.
“Providing easy debt to spend our way out of the COVID crisis is a short-sighted ‘fix’ that will have terrible long-term consequences for many people. Even with the laws we have in place, people are still being lured into unaffordable debt, and this bill would leave the consumer credit law framework gutted and in a state of disarray.”
Financial Rights CEO Karen Cox said the proposed changes would remove vital legal lifelines that borrowers can call upon against lenders when they are sold unaffordable credit they could never hope to repay. It will also remove penalties for irresponsible conduct.
“If this bill is passed, it will cause untold harm to individuals and families. Removing these protections will allow lenders to load people up with unaffordable debt at a time when many people are already struggling amid the pressures of COVID-19,” she said.
The group highlighted that the changes to consumer laws are against banking royal commissioner Kenneth Hayne’s recommendation that the law remain unchanged, in his report two years ago.
“Axing safe lending laws will hinder our economic recovery. Australia already has the second-highest level of personal household debt in the world. Loading people up with even more debt will make it even more challenging for households already doing it tough,” CHOICE CEO Alan Kirkland concluded.
