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While brokers have cited frustrations over clients’ loan applications being knocked back, ABA said responsible lending laws are designed to protect borrowers.
The Australian Banking Association’s chief executive, Anna Bligh, said responsible lending laws, which require banks to assess a customer’s income and expenses and overall ability to repay a loan are there for a reason, it came in response to media reports that families had been unfairly discriminated against.
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Speaking to the ABC in response to allegations of loan applications being denied unfairly, Ms Bligh said lending laws are very important protections against banks lending money to people that they can’t afford to repay.
Loan Market broker, Carol King, recently raised similar concerns where single clients had their loan applications knocked back, due to family benefits not considered in an application or proper assessments of dependents factored into a parent’s expense or maternity or paternity leave posing challenges.
ABA’s Ms Bligh said if it says on your payslip, ‘birth leave’ or ‘maternity leave’, you will be required to take one more step and that is to have a letter from your employer to verify that you are returning to work and the salary that you’ll be on when you return to it.
Ms King argued that this can be difficult for self-employed single parents who “cannot write their own letter with lenders having the level of comfort necessary to sign off on this” and has urged for reforms, recently publishing a white paper to spark conversation.
Indeed, with interest rates and the cost of living increasing, banks must ensure people can handle additional debt.
“There are few circumstances that contribute to poor financial well-being more than being in debt — having a debt that you can’t repay,” ABA’s Ms Bligh said.
“So the responsible lending laws are very, very important to protect, whether it’s mums on maternity leave, or, you know, dads who are temporarily unemployed, or, you know, anybody needs to make sure that we’re not lending to a level that people cannot afford.”
Australia’s banks have obligations under the Anti-Discrimination Act of Australia alongside other obligations such as to “rigorously test a person’s income and expenses before giving them a lending product”, Ms Bligh said.
She added that having documentation to verify that income was equally important.
“In fact, the law requires that. It requires banks to individually verify and document the circumstances of every applicant, so that you need to verify and document what their income is, and what their expenses will be,” Ms Bligh said.
Recognising that parental leave can be a “difficult time”, Ms Bligh said many of Australia’s banks are “bending over backwards to help women and families who are going through the early stages of parenthood”, with specific lending products for people on maternity leave, where they can pause their payments or in fact reduce their payments for a period of time.
“For example, it could be that you are entitled to either pause your payments on the loan, during the period of maternity leave, or reduce those payments, if you need to,” Ms Bligh said.
She said this was “deliberately designed” to get people through a period of time that can be quite financially challenging because not all parental leave is fully paid.
But she added it was important for banks to be “careful” in how they manage their obligations and if customers have felt mistreated, it was “really important” for banks to take note.
“But it will always be the case that people who are on that kind of leave will be asked to verify with documents, because that’s what’s required by the law,” Ms Bligh said.
“Those laws are there for very good reasons and sometimes are very frustrating.”
[Related: Lenders family benefit policies under spotlight, broker reviews]
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