Proposed new responsible lending laws pass the House of Representatives

By Kerensa Sneyd, Dominique Logan
Financial Services

Next stop: Senate 3 min read

On Monday 15 March 2021, the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 (the Bill) passed the House of Representatives, and was introduced in the Senate the following day. This followed the release of the Senate Economics Legislation Committee Report on the Bill (the Report).

Somewhat unsurprisingly, the Committee has recommended that the Bill be passed without amendment. The Report largely reproduces existing background material on the Bill, as well as views on the key issues raised and examined during the Committee's inquiry. Dissenting reports were included from the Labor Committee members and the Australian Greens.

The Committee received 112 submissions. Parties in support of the Bill largely included representatives from the banking, property and business sectors, and those against included representatives from the community sector, including the Law Council of Australia.

Recap - changes introduced by the Bill

If passed, the Bill will:

  1. amend the National Consumer Credit Protection Act 2009 (Cth) (Credit Act) so the responsible lending obligations (RLOs) only apply to small amount credit contracts (SACCs) and consumer leases;
  2. provide the Minister with the power to determine standards by legislative instrument in relation to non-ADI credit conduct; and
  3. extend the mortgage broker best interests obligations to other credit assistance providers.

Unlike the majority of recent financial services reform, the Bill has not been introduced in response to a recommendation of the Royal Commission – in fact, it ignores one of Commissioner Hayne's key recommendations that 'the NCCP Act should not be amended to alter the obligation to assess unsuitability'. The Bill is instead promoted as the Government's solution to improve the post-COVID-19 flow of credit in the Australian economy (which, we should add, has been widely criticised in both the Committee hearings and Parliamentary debate as a 'solution looking for a problem').

The explanatory memorandum describes the RLO changes as beneficial for both lenders and borrowers. While we acknowledge (as we did in our earlier Insight) that the RLO changes may help simplify the current patchwork of regulation that overlays consumer lending, the Bill (in its present form) fails to address one of the larger casualties of the RLO changes – a consumer's statutory right of redress. Currently, the NCCP Act empowers the courts to make orders to compensate a consumer for loss or damage suffered as a result of a credit provider's breach of a civil penalty provision (which includes the RLOs). By removing the RLOs for all consumer lending other than SACCs and consumer leases, the Government is also removing the ability for impacted consumers (primarily, those with ADI loans) to seek redress from the court for irresponsible lending. Instead, AFCA is being promoted as the primary redress authority, raising particular concerns regarding transparency (given the majority of AFCA complaints are resolved by negotiation).

Where to from here?

The fate of the Bill will depend on whether the Government can gain the support of three cross benchers in the Senate. This is a point of much speculation, with recent news reports suggesting this requires a great deal of Government 'headspace' to negotiate.

The Senate resumes on 11 May 2021 and we will be watching the developments on the Bill closely.