ASIC kept in the dark on scrapping responsible lending rules

ASIC kept in the dark on scrapping responsible lending rules

Financial regulators weren’t asked for their assessment on the scrapping of responsible lending laws before the government’s surprise announcement, according to testimony, leaving the head of a leading regulator to learn about the controversial decision in media reports.

Commissioners from ASIC and APRA were questioned about the scrapping of responsible lending laws before a parliamentary committee last week, where they revealed they were given little-to-no notice and were not asked for their views on the decision.

“When was ASIC first informed of the government's intention to scrap responsible lending obligations?,” Dr Andrew Leigh asked, shadow treasurer for Labor.

“I'm the commissioner with responsibility for credit,” Sean Hughes replied, commissioner at ASIC, “and I was first advised when I read the Treasurer's media statement through the media on the morning of 25 September.”

“That's extraordinary,” Dr Leigh replied. “So you got no heads-up ... You weren't asked to provide any advice.”

ASIC is responsible for making sure lenders fulfil their responsible lending obligations (RLO), laws introduced after the Global Financial Crisis (GFC) that require them to verify a person can afford to repay the debt they’re being sold.

Treasurer Josh Frydenberg announced the consumer protections would be reformed in a media release and an op-ed published in The Australian on September 25.

Surprise testimony

Mr Hughes was prompted to answer the question after ASIC’s chair, James Shipton, announced he was stepping aside following an investigation into the claiming of relocation costs totalling $118,000.

“I'm speaking on my own behalf as the responsible commissioner for this area,” Mr Hughes said. “I don't know whether there were communications between the Treasurer and his office and Mr Shipton.”

ASIC did not respond to questions clarifying if Mr Shipton was consulted on the decision to scrap responsible lending laws.

Treasury said a “targeted public consultation” was undertaken after the announcement was made, but they did not disclose the stakeholders involved when asked. There is no consultation posting for the credit reforms on Treasury’s website.

“The timing of any public consultation on draft legislation is a matter for Government,” a Treasury spokesperson told RateCity.

Treasurer Frydenberg quoted select public testimony of RBA chair Philip Lowe in his announcement.

RateCity asked the RBA if they had been included as part of consultation. The nation’s central bank declined to provide a comment.

Going against past recommendations

Dr Leigh observed the government’s decision to scrap responsible lending obligations contradicts an ASIC parliamentary submission made in March 2017. The submission found the “credit reforms (including RLOs) have gone a long way towards addressing many of the issues that were prevalent throughout the credit industry before 2010”.

“Would you agree that ASIC's 2017 Senate submission would contradict the government's decision to scrap responsible lending obligations?,” Dr Leigh asked.

Mr Hughes said he could not comment on the report as he was not a commission member at the time.

He referred again to the Treasurer’s statement on 25 September, and said it was clear they believed the policy was necessary to address the economic impacts of the pandemic.

“From ASIC's point of view, we're just getting on with the instructions we've been given to support Treasury in implementing those reforms,” Mr Hughes said.

APRA was not ‘advocating change’

The Australian Prudential Regulation Authority (APRA) was later questioned on the notice they were given ahead of the news that responsible lending laws would be scrapped.

“I think we learnt in early August that the government was thinking of making changes and was considering what options might be possible,” Wayne Byres said, chair of APRA.

“... (Treasurer Frydenberg) asked me (in September) some questions about APRA, APRA standards and options for how APRA standards might be applied. That's what I gave advice on.”

Dr Leigh questioned if APRA provided any policy or impact analysis of the changes. “Did you look, for example, at how it would impact low- and middle-income households?,” he asked.

Mr Byres said “(APRA) didn't provide advice on that”.

Dr Leigh asked for APRA’s position on the scrapping of responsible lending laws.

“We were not advocating change”, Dr Byres said.

What scrapping the rules could mean for Australians

The announcement to scrap responsible lending rules has proven divisive. Businesses generally hailed people’s ability to secure credit easier, while four consumer groups banded together in opposition, warning it’ll result in more people holding debt they can’t afford.

The governance born from the Global Financial Crisis and Royal Commission into banking highlighted the need for responsible lending practices, Sally Tindall said, research director at RateCity.

“There’s no question the work of ASIC and APRA to improve the quality of bank’s home loan books over the last 10 years has put a lot of Australians in a much better position to ride out the COVID storm,” she said.

“The last thing we want is to go back to the bad old days where people find themselves in loans they can’t repay.”

Shadow Treasurer Andrew Leigh questioned the decision to scrap responsible lending practices.

“It’s astonishing that the government didn’t even consult ASIC and APRA before making a major change to responsible lending laws,” he told RateCity.

“Consumer groups have warned that these changes could cause significant harm.

“With Australian household debt loads among the highest in the world, does the economy really need more irresponsible lending?”

 

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What do people do with a Macquarie Bank reverse?

There are a number of ways people use a Macquarie Bank reverse mortgage. Below are some reasons borrowers tend to release their home’s equity via a reverse mortgage:

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When does Commonwealth Bank charge an early exit fee?

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In Australia, mortgage brokers are required by law to carry an Australian Credit License (ACL) if they offer credit assistance services. Which is the legal term for guidance regarding the different kinds of credit offered by lenders, including home loan mortgages. They may not need this license if they are working for an aggregator, for instance, as a franchisee. In both these situations, they need to comply with the regulations laid down by the Australian Securities and Investments Commission (ASIC).

These regulations, which are stipulated by Australian legislation, require mortgage brokers to comply with what are called “responsible lending” and “best interest” obligations. Responsible lending obligations mean brokers have to suggest “suitable” home loans. This means loans that you can easily qualify for,  actually meet your needs, and don’t prove unnecessarily challenging for you.

Starting 1 January 2021, mortgage brokers must comply with best interest obligations in addition to responsible lending obligations. These require mortgage brokers to act in the best interest of their customers and also requires them to prioritise their customers’ interests over their own. For instance, a mortgage broker may not recommend a lender who gives them a commission if that lender’s home loan offer does not benefit that particular customer.

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What is a bad credit home loan?

A bad credit home loan is a mortgage for people with a low credit score. Lenders regard bad credit borrowers as riskier than ‘vanilla’ borrowers, so they tend to charge higher interest rates for bad credit home loans.

If you want a bad credit home loan, you’re more likely to get approved by a small non-bank lender than by a big four bank or another mainstream lender.

Do mortgage brokers need a consumer credit license?

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Some mortgage brokers can be “credit representatives”, or franchisees of a mortgage aggregator. In this case, if the aggregator has a license, the mortgage broker need not have one. The reasoning for this is that the franchise agreement usually requires mortgage brokers to comply with the laws applicable to the aggregator. If you’re speaking to a mortgage broker, you can ask them if they receive commissions from lenders, which is a good indicator that they need to be licensed. Consider requesting their license details if they don’t give you the details beforehand. 

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If you want to get a home loan with bad credit, you need to convince a lender that your problems are behind you and that you will, indeed, be able to repay a mortgage.

One step you might want to take is to visit a mortgage broker who specialises in bad credit home loans (also known as ‘non-conforming home loans’ or ‘sub-prime home loans’). An experienced broker will know which lenders to approach, and how to plead your case with each of them.

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Are bad credit home loans dangerous?

Bad credit home loans can be dangerous if the borrower signs up for a loan they’ll struggle to repay. This might occur if the borrower takes out a mortgage at the limit of their financial capacity, especially if they have some combination of a low income, an insecure job and poor savings habits.

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