Senate inquiry backs BID extension

The bill largely focuses on amending the credit laws so that they remove responsible lending obligations (RLOs) and extend the best interests duty to more credit assistance providers, among other changes.

The chief intention of the removal of the RLOs, as set out by the federal government, is to reduce the time it takes for individuals and small businesses to access credit and streamline lending regulation. 

After receiving more than 100 submissions and holding two hearings into the matter, the committee has now recommended that the bill be passed.

The report outlines that the extension of the BID “is intended to improve consumer outcomes by requiring a broad cross-section of credit assistance providers to act in the consumer’s best interest”.

According to the explanatory memorandum for the bill, the extension requires licensees and their credit representatives to act in the best interests of consumers when providing credit assistance in relation to credit contracts and consumers leases and, where there is a conflict of interest, give priority to consumers’ interests.

Licensees that authorise credit representatives must also take reasonable steps to ensure that those persons comply with the new obligations.

These obligations do not apply to credit assistance provided in relation to credit for predominantly business purposes, nor do they generally apply to licensees that provide credit assistance where they are also the credit provider.

The Senate report outlined that there was “general support for the extension of the best interests obligations from mortgage brokers to other credit assistance providers”. 

The committee highlighted the MFAA’s submission where they stated that it considers it will “ultimately lead to stronger customer outcomes, as lenders and brokers will have a clearer understanding of their individual responsibilities, including a higher legal duty for brokers”. 

Similarly, the committee noted CPA Australia’s submission that the “current principles-based approach will help support and positively influence the conduct of all credit representatives to ensure they prioritise the interest of their clients over those of their own, or other relevant associates.”

The report also noted that the Economic Abuse Reference Group also expressed its support for this reform, noting in their submission that they support the “general principle and standard of behaviour” contained within these obligations.

Notwithstanding this, the group also submitted to the committee that the extension of these obligations should complement, not replace, the existing responsible lending obligations, as they do not consider, or resolve conflicts between co-borrowers or guarantors.

The committee said it therefore “welcomes the extension of the best interests obligations, which currently apply only to mortgage brokers”.

Recommendation for RLOs to be repealed

As well as supporting the extension of the BID, the Senate committee also backed the repeal of responsible lending obligations.

The report reads: “The committee notes that a well-functioning credit market is essential for economic growth generally, and for Australia’s recovery from the COVID-19 pandemic specifically. 

“The committee agrees that the current consumer credit protection framework is potentially overly prescriptive and that regulatory duplication between the responsible lending obligations, under the Credit Act, and the prudential standards issued by APRA could be an issue.”

It went on to say that it was “concerned by evidence that the regulatory framework has resulted in consumers being unable to access credit in a timely manner to buy their first home or to obtain a grant under the HomeBuilder scheme”.

It added that it was also concerned by the “invasive and onerous nature of the inquiry and verification processes required under the existing responsible lending obligations”.

The report reads: “The committee notes the key concerns with the proposed reforms raised by inquiry participants, both through their submissions and at the two public hearings held in Canberra. 

“The committee is of the view that these regulatory changes will not undermine consumer protections and that the principle of ‘responsible lending’ is deeply embedded in Australia’s broader regulatory framework, which credit providers and credit assistance providers must still operate within and comply with.

“Additionally, the committee notes the vital role that AFCA plays in the efficient resolution of complaints and redress for consumers who need it. It is a free, fast and independent dispute resolution scheme, which improves the level of support and outcomes for consumers, especially those who are in substantial hardship. 

“The committee suggests that the government continue to raise awareness of and promote the dispute resolution services available through AFCA, with an ongoing focus on continual improvements of AFCA’s processes and services.”

The Senate committee also “welcomed” the “enhancement proposed by APRA to its credit risk management prudential standard (APS 220) requiring ADIs to assess an individual borrower's capacity to repay a loan without substantial hardship”. 

The committee also noted that similar arrangements are expected to be put in place for non-ADIs through a legislative instrument.  

“The committee is acutely aware of the harm that unsuitable SACCs and consumer leases can cause vulnerable members of the community, and strongly supports the proposed enhancements to consumer protections for these products,” it said.

“In addition to protecting vulnerable members of the community, the committee believes the reforms proposed by the government will promote financial inclusion through the introduction of a new protected earnings amount and a cap on costs for consumer lease. 

“The committee believes these reforms will reduce the risk that consumers are unable to pay for their basic needs, or will default on their other commitments.”

Senator Slade Brockman, Liberal senator for Western Australia and chair of the committee, concluded: “The committee recommends the bill be passed.”

However, Labor senators and Australian Greens have also put forward “dissenting reports”, included in the inquiry’s final report, to voice their opposition to the move. These largely relate to concerns around consumer protections.

The National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 is now scheduled for debate on Monday (15 March) in the Senate.

A vote on the repeal of safe lending laws is expected next week. 

If the bill is passed, the date of effect for the amendments will be the day after Royal Assent.

However, the amendments related to the best interests obligations will commence six months after that day.

[Related: Treasury seeks to extend BID to all credit assistance providers]