Treasurer Frydenberg has announced that the Federal Government is proposing to make significant changes to responsible lending laws to make it easier for qualified borrowers to access credit, while maintaining strong consumer protections.
These changes will remove unnecessary barriers to the flow of credit to consumers and small businesses, assisting in our economic recovery from the COVID-19 pandemic.
The MFAA welcomes the proposed reforms to the Australian credit framework. While there may have been a strong rationale for the responsible lending principles contained within the National Consumer Credit Protection Act 2009 (Credit Act) following the effects of the Global Financial Crisis, the Act is no longer fit for purpose, and to leave it unchanged risks slowing our economic recovery.
The evolution of the responsible lending regime - combined with post-Royal Commission uncertainty on how to effectively comply - led to unacceptable growth in credit application processing times, and swamped customers and brokers with unnecessary paperwork and processes.
The proposed changes should assist to address what has in the past been an almost forensic audit of consumer expenditure when assessing credit, with little to no consideration given to the borrower’s ability to adjust spending habits in order to take on new exposures, which has no doubt unnecessarily restricted the flow of credit in recent years.
Once these changes are implemented, we should begin to see faster turnaround times for qualified borrowers which has been an increasing issue for lenders, and a point of frustration for many of you, particularly this year.
These changes will leave the mortgage broking industry in a strong position, as the channel will now be further differentiated for customers beyond the experience, expertise, choice and convenience already offered by the channel.
Customers will now have the comfort of knowing that mortgage brokers will operate under a Best Interests Duty (BID) from 1 January 2021, which is a higher duty than responsible lending. Under the BID, all consumers obtaining credit assistance through the mortgage broker channel, and particularly those who are most vulnerable, will benefit from the protection of an unrivalled higher duty, providing yet another compelling reason to use a mortgage broker.
The integrity of the channel will also be strengthened as borrowers will now be more accountable for providing accurate information to inform lending decisions, which is also long overdue.
Whilst the removal of the outdated and overly complex responsible lending obligations is important, we will be working to ensure that lenders continue to provide broker customers with the same application processing and credit assessment service levels they provide to their bank branch customers. It is critical that these changes do not produce “channel conflict”, which would negatively impact consumer outcomes and competition.
In addition, the BID is currently imbedded within the Credit Act, which creates complexity and will need to be addressed. We look forward to working with Government and regulators on how the BID and responsible lending may be separated in a manner that maintains the integrity of the BID, produces a workable obligation going forward and achieves the Government's objective of increasing the flow of credit.
These complexities notwithstanding, this is a positive development for the mortgage broking channel, and will help improve competition, make it easier for consumers to switch lenders, and enhance access to credit for small businesses.
As we continue to prepare for the full implementation of the BID in January 2021, and the review of broker remuneration in 2022, it is extremely encouraging to see government taking appropriate steps to help credit flow through our economy, while ensuring vulnerable customers continue to be protected. I believe this will stand us in good stead for the coming year, as we rebound from the effects of COVID-19.
I believe we can now look with confidence and certainty towards 2022 and beyond, as our industry continues to drive increased market share, based on ever-growing consumer confidence.
Chief Executive Officer
Mortgage & Finance Association of Australia