SYDNEY, Australia – The Government’s plan to ease up lending laws urged many experts and financial counselling groups to warn of the move’s negative impact on the economy.
On Friday, the Federal Government Treasurer Josh Frydenberg announced the Government’s plan to make changes in the land’s existing lending laws. While many Australians seeking better access to credit welcomed this move, it also collected many oppositions, earning the project’s possible negative outcomes.
According to Frydenberg, the move to ease up lending laws is a part of the Government’s measures to stimulate economic growth in the country. The pandemic has caused Australia to slid into its first unexpected economic recession in nearly 30 years. Many Australians endure financial difficulties after millions of cut-offs in jobs and thousands of businesses and industries closed during the pandemic. Although the Government has always supported providing relief to its citizens, the resources given were just not that enough.
Now that the COVID-19 virus is already leaving the states, the whole Federal Government is now facing a sinking economy. Frydenberg estimated that the Government’s budget deficit for the latest fiscal year ended at 85.3 billion dollars and is still expected to balloon to a massive 185 billion dollars for the current year. These numbers already surpassed the highest recorded during the 2008 global crisis, where the country’s budget deficit was only at 54.5 billion dollars. In total, Australia’s national debt already reached 25 per cent of the country’s total GDP.
One of the solutions that the Government is eyeing is a loosened-up set of lending laws that will give eligible Australians better and more convenient access to credit. The lending industry’s existing regulatory framework had become more stringent when banks enacted cuts on their credit and loan interest rates and fees. The rates recorded have been at an all-time low. However, the stringent application and approval process still makes it difficult for Australians to access this advantage.
These changes will be the most significant reform seen in the lending industry in decades. Many lenders have become more cautious and stringent in their lending processes after wide-ranging misconduct peaked last year.
The newly proposed lending law reforms will ease the lending regulatory framework to cut the costs and the time needed for a credit application. This reform will require banks to allow personal statements on the borrowers’ income and spending instead of conducting the existing extensive confirmation and verification process.
Many consumers, especially small businesses, welcomed this move. However, many critics and experts have also expressed their worries in the sudden revamping of the land’s lending laws.
Many financial counsellors have warned of the possible adverse outcomes of the move, saying that it might just be another “financial crisis in the making.” The chief executive of CARE financial counseling, Carmel Franklin, has expressed being “disturbed” of the idea, citing the Hayne Royal Commission. According to her, the commission indicated that strong and responsible lending regulations are essential. Removing it from the system might put many people into a more difficult situation than they already are.
Fiona Guthrie, a member of the Financial Counselling Australia, even backed this claim up, citing that the strong lending laws and processes’ abolition will only put more Australians to larger debts. She further added that there should be a certain profit that indicates borrowers’ lending edge. With freed up obligations, banks will only be “aggressively pushing” credit to more customers.
The Financial Counselling Australia has already seen thousands of Australians seeking the organization’s help after being approved for loans and credit cards that they cannot even afford. The organization emphasized that the Hayne Banking Royal Commission the Government legislated years ago is meant to avoid Australians’ situations. This rule is the same one that the Government is trying to overrule. The commission is dedicated to assessing what loans or spending a borrower can have to have repayments that do not cost any significant financial hardships.
In the move to abolish lending laws, Treasurer Frydenberg abandons his commitment to at least 76 recommendations from Hayne, given to him February of last year. These recommendations include the very first item that states that the credit law is not amendable in any circumstances that will change the obligation to assess “unsuitability.”
Other financial groups have also slammed the idea, saying that the move will remove all the banks’ responsibilities towards their clients.
Consumer Action Law Center Chief Executive Gerard Brody also cited case studies to the royal commission stating that there is no evidence supporting the claim that lending laws affect the credit flow in the economy.
According to Karen Cox, Financial Rights Legal Center Chief Executive, abolishing the lending rules might be a formula to an even flailing economy. She emphasized that the absence of a stringent and responsible lending process will only push households to larger credit debts, pushing them for more difficult credit arrangements that will hurt them and the economy even more in the long run.
Meanwhile, many groups still supported the possible death of the responsible lending rules. One of which that expressed support of the move is the Australian Banking Corporation. The bank’s chief executive, Anna Bligh, said that it is only because the Government and banks ensure the flow of credit to families and businesses.