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The broker association has called on the Senate to ensure that any changes to lending laws provide a clear delineation between consumer and business lending, to prevent any roadblocks to lending to SMEs.
On Friday (26 February), the Senate economics legislation committee concluded its hearings for its inquiry into the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020.
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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.
However, building on the evidence provided in its submission to Senate, the Commercial & Asset Finance Brokers Association of Australia (CAFBA) was called to the hearings to provide further detail.
Representing the hearing on Friday was CAFBA president Matt Atkin and former president and chair of the CAFBA advocacy committee, David Gandolfo. Both men are also finance brokers in their own right.
The association representatives suggested that the proposed changes to responsible lending should not affect commercial brokers, as the explanatory notes are “clear that it only affects regulated consumer transactions”.
Indeed, Mr Gandolfo urged the Senate committee to ensure that this remained the case.
The Quantum Business Finance broker said that while business finance is not currently caught by the Credit Act, he outlined that “the reality is, however, that there is a one-size-fits-all approach to lending” from banks when it comes to business lending, who are “thereby migrating responsible Lending obligations criteria to small-business credit”.
“The effect of this is to severely affect access to finance to small business.”
Indeed, when first announcing the repeal of responsible lending laws last year, Treasurer Josh Frydenberg noted that the repeal would seek to remove ambiguity regarding the application of consumer lending laws to small-business lending.
Mr Gandolfo emphasised that such ambiguity was crucial to free up lending to businesses, particularly given the impacts of COVID-19 on businesses and the economy.
He said: “The assessment of consumer credit is very much backward looking and looks at historical data of, largely, fixed income and predictable expenses. Commercial credit, whether it’s for small business or medium or large businesses, is very much forward-looking – it’s dependent on business growth and what is happening in the business, and where that business is headed.
“So, the assessment criteria is very, very different… But what has happened is that many banks have overlaid consumer credit regulations into the small-business market, as a precaution. Because, in their mind, it is not clear that the NCCP in its original form is only purely confined to consumer lending, and there’s that sort of policy creep, where that consumer-style assessment has started to be applied to business lending.”
The former CAFBA president added that as small-business finance is “significantly more complex than a mortgage or other consumer loan”, it should be “assessed accordingly”.
Mr Gandolfo concluded: “So, if nothing else, can we ask this committee [that] whatever finding it makes [in its inquiry], could we ask this committee to specifically make it clear that that finding… does not apply to commercial lending, and that is any business any lending for business purposes.”
The Senate will now consider the submissions received during consultation and the evidence given during the hearings to complete its inquiry into the repeal of responsible lending and is expected to report back to the chamber on 12 March 2021.
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