SYDNEY (BLOOMBERG) - Australia's government will loosen responsible lending laws in a bid to boost the flow of credit and help the economy recover from its first recession in almost 30 years. Bank shares surged.
As part of a sweeping overhaul, the government will scrap so-called responsible lending obligations for most forms of credit that it says have made banks overly cautious and stifled access to mortgages and other loans. Removing regulatory overlap and cutting red tape should speed up approvals, Treasurer Josh Frydenberg said in a statement Friday.
"As the nation strives to recover from Covid-19, the provision of and access to credit will be critical to rebuilding every sector of our economy, from hospitality to tourism, construction to retail," Mr Frydenberg said.
"The burden of regulation has been increasing and with it have come more obstacles for the consumer, making it harder to access credit," he said. "Across time, lenders have become increasingly risk averse and overly conservative. As a consequence, borrowers, irrespective of their financial circumstances, have faced an ever more intrusive, difficult and drawn-out approval process."
Shares of the big-four banks surged. Australia & New Zealand Banking Group (ANZ) gained as much as 4.8 per cent in early Sydney trade, and Commonwealth Bank of Australia rose 3 per cent. National Australia Bank climbed as much as 6.6 per cent and Westpac Banking Corp surged 7.3 per cent.
The Australian Banking Association welcomed the changes. "With the right balance, these changes will simplify lending rules while maintaining strong protections for borrowers and improving protections for those vulnerable consumers using debt management firms, small amount credit providers and consumer leases," chief executive officer Anna Bligh said in a statement.
The move is a turnaround from the findings of an inquiry into misconduct in the financial system, which called for banks to more strictly follow lending rules.
Mr Frydenberg said the changes will restore balance to a system that has seen the "pendulum swing too far away from borrower beware to lender beware."
He cited examples where a pensioner with hundreds of thousands of dollars in savings was refused a credit card because the lender could only consider her income, not her assets, in evaluating her credit, and borrowers being asked to explain spending on Netflix and Spotify subscriptions so the lender can be confident it can't be held liable in the event the borrower can't repay the loan.
In effect, the government has heeded what became known as the 'wagyu and shiraz' verdict when the Australian Securities and Investments Commission last year lost a high-profile case claiming Westpac Banking Corp. breached responsible lending laws by relying on spending benchmarks in approving mortgages. The regulator had argued actual living expenses should be used instead of benchmarks, which have been criticized for underestimating how much people spend.
As part of his ruling, Justice Nye Perram said borrowers can change their spending habits to service a mortgage: "I may eat wagyu beef everyday washed down with the finest Shiraz but, if I really want my new home, I can make do on much more modest fare."
Lenders that are currently regulated by the Australian Prudential Regulation Authority will remain subject to APRA's lending standards, but will no longer be monitored by ASIC for compliance.