Treasury consultation on consumer credit reforms

In November 2020, the Commonwealth Government held a public consultation on proposed changes to the National Consumer Credit Protection Act 2009. The aim of the changes was to allow people to borrow (and spend) money more easily and in turn stimulate the economy.

Under the current law, responsible lending obligations require lenders to make sure that customers do not take out loans that are unsuitable for them or force them into financial hardship. The government is proposing to relax these consumer protections so they only apply to smaller loans.

The Salvation Army’s experience walking alongside people experiencing disadvantage is that the existing responsible lending obligations provide a safeguard against unsustainable debt and further financial hardship. Despite this we are still seeing some people fall through the cracks. This then leads to significant financial, mental and emotional stress.

Lenders naturally understand the loans they are selling better than borrowers. It is unfair to place the burden of responsibility on borrowers. Our concern is that removing responsible lending obligations would expose consumers to an unacceptable level of vulnerability at a time of high unemployment, uncertainty caused by the pandemic and an already high debt to income ratio.

In our submission, The Salvation Army recommended that the government not go ahead with the proposed changes but instead increase the consumer protections that they proposed in 2017.

Following the consultation process, the Commonwealth Government made minor changes to the legislation, which was later introduced to Parliament. These changes did not address the critical concerns of The Salvation Army. Our key concerns can be found in The Salvation Army’s submission to the Parliamentary inquiry into the Bill.