‘The bill is done’: Jacqui Lambie on RLO repeal

The proposed reforms would involve a shift from a “lender beware” to a “borrower responsibility” model, which would allow lenders to rely on the information provided by borrowers.

While the proposals to wind back the obligations have been met with support from the finance and property industries as well as the Reserve Bank of Australia (RBA), who argue that the reforms would improve the flow of credit and reduce onerous red tape, senators, consumer groups and Labor Party members have expressed concern about the reforms.

Senators against the reforms

Senator for Tasmania Jacqui Lambie has joined other senators and stated that she would not support the repeal of the responsible lending obligations, telling The Adviser in a statement that “this bill is done”.

Ms Lambie said: “I won’t be helping the boys’ club at the big end of town. They’re already making massive profits for their shareholders.

“You can bet they won’t do right by their customers if it costs their bottom line.”

Last week, One Nation senator Pauline Hanson indicated that she would also be opposing the repeal when it is voted on in the Senate, while independent senator for South Australia Rex Patrick also indicated that he would not support the bill, according to media reports.

The federal government would require three votes from the Senate crossbench to pass the legislation to repeal responsible lending obligations.

The bill is due to be debated in mid-June when the Senate is set to meet.

Banking, property industry support repeal

Responding to the senators’ stance, Treasurer Josh Frydenberg reiterated in a statement that the federal government would continue to work with the crossbench on the reforms “to help secure Australia’s recovery”.

He said: "The current regulatory framework, which was put in place more than 10 years ago, too often leads to delays in consumers receiving credit, potentially impeding their purchasing decisions.”

“It’s now more important than ever that our economic recovery is not held back by unnecessary barriers to the flow of credit to households and business.”

The federal government also noted that various banking and property associations had recently expressed their support for its proposed reforms, including the Australian Banking Association (ABA), Customer Owned Banking Association (COBA) and the Housing Industry Association (HIA).

The government said that in a Senate committee hearing in February, the ABA said this reform would result in less paperwork and time for borrowers rather than less scrutiny for lenders.

It said: “It means less reliance on obscure discretionary spending during the loan assessment and more attention on the factors that count, like income expenses and debt.”

“AFCA (the Australian Financial Complaints Authority) offers a free complaints service and has a broader remit and more powers than its predecessors.

“There are more remedies available to more customers with a complaint than existed a decade ago. The government’s reforms in this bill do not the affect the rights of customers to bring a lending complaint to AFCA.”

According to the government, COBA told the hearing that red tape duplication had placed a “cost burden” on financial institutions, and made it increasingly difficult to remain sustainable.

“I’ll just reference the fact that 20 years ago there were more than 300 customer-owned banking institutions,” COBA said.

“Ten years ago, there were about 150. We presently have about 67. That is partly because of the increased burden of regulation and compliance.”

The Housing Industry Association told the hearing that the time frame to assess mortgages surged in 2018.

“What we saw in the 2018 time frame was that the average time frame to assess a mortgage went from around two weeks to two months and the number of customers that were rejected for finance increased from between 7 and 9 per cent to between 17 and 19 per cent,” it said.

“The consequence of that is that we see a decline in home ownership.”

Lender tech slows mortgage process: Choice

However, consumer advocacy group Choice senior policy and campaigns adviser Patrick Veyret argued that the repeal of the responsible lending obligations would be “devastating for the Australian community”.

He also said that the Australian Prudential Regulation Authority (APRA) would be “ill-suited” to be a conduct regulator in this space.

“APRA itself has said that it wouldn’t prosecute individual breaches of irresponsible lending,” Mr Veyret told The Adviser.

“They wouldn’t have penalties, and they wouldn’t have the ability to take an individual bank to court. It would be such a shame if APRA were regulating consumer lending.”

Mr Veyret also argued that mortgage processes were being delayed due to the use of outdated IT systems by lenders rather than due to the responsible lending obligations.

He said: “The very same bank who are lobbying to axe responsible lending laws can take 20 or 30 days to process a mortgage.

“So, the fundamental issue is lenders’ ability to process mortgages. And for many of the big banks, they have been too risk-averse in the interpretation of the principles-based law.”

According to the Momentum Intelligence Broker Pulse survey for May, all four major banks have continued to experience delays in their time to initial credit decision, with the average lender turnaround figure ballooning to 11.5 days for broker loans.

While none of the major banks were able to get back to brokers in under 10 business days in April, non-major banks like Macquarie and ING were found to be the fastest at 3.9 and 4.2 days, respectively.

The CEOs of the CBA, NAB, Westpac and ANZ recently told the House of Representatives’ standing committee on economics that turnaround times were within one or two days in the proprietary channel but, on average, between 10 and 12 days in the broker channel.

[Related: Automating broker loan assessments ‘on the priority list’: ANZ]