Speech: National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020

Speech: National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 Main Image

Mrs PHILLIPS (Gilmore) (16:25): After everything we saw in the banking royal commission, I am shocked to be standing here defending the current consumer protections from being watered down. Sadly, the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 is yet another case of this coalition government conducting a review and then doing the exact opposite of what that review recommended.

Australia was horrified—I know I certainly was—at what it heard from that royal commission: unscrupulous behaviour by financial institutions that were hurting local people, saddling consumers with debt they knew they couldn't afford and destroying lives. It was more than heartbreaking; it was absolutely devastating, and it should have been a catalyst for strong action to strengthen consumer protections.

Recommendation 1.1 of the royal commission—yes, that's right, recommendation 1.1—said that responsible lending obligations should not be amended:

The NCCP Act should not be amended to alter the obligation to assess unsuitability.

It was the very first recommendation. Treasury's own submission to the royal commission noted that appropriate responsible lending laws could enhance, rather than detract from, macroeconomic outcomes—that they make the system stronger, not weaker. But what does this bill here today do? It is not only attempting to alter responsible lending obligations; it's attempting to remove them from most consumer credit leases.

In a nutshell, this bill will shift the responsibility from lenders to borrowers, reducing protections for borrowers in the event credit decisions are made on the basis of incorrect information. These laws work to ensure loans are affordable, not unsuitable, for the customer. In other words, they make sure that people in desperate financial circumstances don't get themselves into a situation where they have borrowed more than they can possibly afford to repay. This bill is a direct contradiction of the Hayne report's recommendations.

I cannot comprehend why the government is looking to do this after everything we have learned from and seen throughout the royal commission process. It's a betrayal of every witness, of every Australian who has had their life devastated by irresponsible lending. More than that, it is dangerous and will have shocking consequences for so many vulnerable people.

The National Consumer Credit Protection Bill was introduced by Labor in 2009 to ensure lenders had a set of responsible lending obligations to abide by. They mean credit providers have to make reasonable inquiries about a customer and assess whether a credit product will be suitable for them. This applies to things like mortgages, personal loans, payday loans, car loans and credit cards. They are flexible and scalable, depending on the circumstances, and they are vital to ensuring we have a stable financial system. Bad debt is bad for everyone—bad for individuals, bad for the economy. Some academics have even gone so far as to say these changes could lead to financial instability or a debt crisis when interest rates begin to rise, which they inevitably will. It's dangerous.

Household debt is at historic highs. In May 2020 Fitch Ratings reported that household debt in Australia was at 186.8 per cent of disposable income—one of the highest levels among AAA rated countries. It is a threat to our economic and financial stability. What I want to know is: why is the government doing this? House prices are booming. I know they certainly are on the South Coast. Only yesterday our local newspaper, the South Coast Register, posted an article which showed that Callala Beach in Jervis Bay has risen to No. 3 in Australia's fastest price growth for small towns. The median house price rose by 14.1 per cent in the 12 months to December 2020.

Across Australia lending is up 10 percentage points. Where is the problem that responsible lending laws are causing? Perhaps that's the wrong question to ask. Perhaps the better question to ask is: what problems are responsible lending laws solving? I have that answer.

A couple of months ago, after the government made this announcement, a group of local financial counsellors came to see me. They were genuinely and seriously concerned about the consequences of this legislation. Among others were representatives from the Shoalhaven Women's Health Centre and Lifeline South Coast, who deal with vulnerable locals on a daily basis. They all told me about the work they do to help people who have gotten into desperate financial situations because of irresponsible lending. What they were most concerned about was the impact on the mental health of their clients. The Shoalhaven Women's Health Centre helps women in a range of vulnerable circumstances, including domestic and family violence, financial abuse, relationship breakdowns, disability, mental health and chronic health issues.

This means they often have very little, if any, disposable income, and many of them are overwhelmed with debt. That is with these laws in place, where financial counsellors can help these women hold creditors accountable when that's needed. They have recourse if creditors behave badly, and they can work with these women to get their heads back above water.

I just want to share some of the case studies that the health centre spoke with me about so you can see the real human face of what these laws do and what the harm will be if they are removed. One client they are working with has an intellectual disability and has been diagnosed with a mental illness. This client was coerced by a so-called friend into going into a local store to take out a cash loan as a favour for them. Once they had left, the client handed the money from the loan over to the friend, who has not been heard from since—heartbreaking actions of one friend taking advantage of another, yes, but where was the responsible lending from this institution? Where have they fulfilled their obligations under the responsible lending laws to make sure this loan was suitable for that person? Did the customer even have the capacity to understand the contract that was in front of them? Could they afford to repay it? Their only income is the disability support pension. They were already in arrears on their electricity and phone bills. They had no capacity to repay this loan. What will happen to this lady now? What would happen without responsible lending obligations?

Another client, who fled domestic violence and left all her belongings behind 10 years ago, used a 60-month interest-free option to purchase whitegoods to set up her new home. Even now, 10 years later, she is sent unsolicited credit cards in the mail by the same lender. These can be activated at any time with no inquiries and no checks to see if she can afford it.

In yet another case, the client's son took out a $5,000 loan with an interest rate of 43 per cent per annum. His mother, who is on an age pension, was put down as a guarantor. When her son stopped making payments, the lender started to direct-debit money from his mother. She couldn't afford it. With the help of the Financial Rights Legal Centre, the women's health centre was able to argue that, had the lender made proper inquiries, they would have known she could not afford those repayments. They managed to get her taken off as guarantor. But what would have happened without these protections?

Lifeline also told me about one of their clients who was experiencing both financial and emotional hardship due to an unmanageable level of debt. Lifeline's financial counsellors deal with people who are totally overwhelmed by debt every day. They spend time helping their clients deal with unscrupulous lenders, which the current laws allow them to do. They told me about one of their clients who was unemployed, has mental health issues and is on the disability support pension. The client went to a retail store to buy a laptop on a payment plan. She had a budget of $1,000 and she was sticking to it, until the salesperson told her she had been approved for $10,000 on the payment plan. The client, sadly, experienced an episodic period of mania and spent the money that she couldn't afford to repay. By the time she sought help from Lifeline, she couldn't meet the repayments and was experiencing high levels of stress and anxiety over the debt. She should never have been given such a high level of credit. Yes, she also acknowledges that she shouldn't have spent it. But, as you can see in each of these cases, the people involved were not coming from strong positions of clarity and consideration. They were vulnerable, and they were taken advantage of and left in terrible situations.

Lifeline told me how many of their clients have identified with suicidal ideation because of their despair over unaffordable debt. As Lifeline rightly pointed out, the South Coast has a high level of unemployment and low income levels. In fact, 27.9 per cent of households in the Shoalhaven reported their gross income as $650 or less, compared with the national average of 20 per cent. This makes our community especially vulnerable to financial harm. The consequences of these reforms will put people at risk of homelessness, repossessions and bankruptcies. We know that financial strain can harm people's mental health and, as Lifeline said, can lead to suicide. Vulnerable people in our community are already experiencing this under the current framework. The royal commission showed this. It proved it.

Tony in my electorate has been dealing with the unscrupulous conduct of a bank for 30 years. In 1985, he was given a simulated foreign currency loan and agreed to pay five to six per cent interest to build his factory near Nowra. What he didn't realise was that this was in the middle of Australia's foreign currency loan scandal. Before long, he was paying 50 per cent interest on something he had agreed to pay five per cent for. Tony says he didn't know about the risks. It ruined his business and has had a profound impact on his life and that of his family. He is still dealing with that.

William from Milton also says his bank so badly mismanaged his superannuation that it cost him and his wife over $800,000. They too are still seeking appropriate recourse many years later. They too have experienced undue harm to their health and mental health, because financial matters have strong impacts on consumers. Where is the help for people like Tony and William? It was meant to be in the royal commission, but the government has squandered it. Removing these protections puts people at more risk of harm and is exactly the opposite of what we should be doing. It won't help to protect our financial system. It puts the whole system at risk and is completely counterintuitive.

The Treasurer is also proposing changes to small-amount credit contracts and consumer leases. Once again, the government is ignoring the recommendations of their own review from 2016, which recommended capping payments at 10 per cent of a consumer's income. The proposed laws would double this for employed people, meaning that consumers could be paying up to 40 per cent of their monthly income in payday lending fees. The proposed laws would also see enforcements spread across two different regulators, ASIC and APRA, but APRA does not have a consumer-facing mandate. Their role is to make sure banks don't make lending decisions that destabilise the bank or the financial system.

Another concerning change in this bill is the way it deals with business loans. The changes will exempt any business lending from protections, regardless of the proportion of the loan that is for business purposes. Right now, a loan would have to have the predominant purpose for the business, but that bar has been removed. This just opens the door for even more exploitation of families through sham business loans.

I share the concerns of consumer groups and financial counsellors like those at the Shoalhaven Women's Health Centre. Without these laws in place, there is no deterrent for lenders to give loans to people in precarious financial situations. There will not be adequate avenues for consumers to take action when a lender has acted against their obligations. It risks leaving people in my electorate with a lifetime of debt they cannot repay or, worse, homeless, distressed and suicidal. This bill will harm local people. It will harm vulnerable Australians. It will hurt our economy and hurt our financial system. It goes against the recommendations of the banking royal commission. It goes against the government's own review of small amount credit contracts. It goes against common sense. I hope the government can take another look at this. I hope they will look at it from the point of view of those locals I mentioned earlier—from the point of view of those who are most vulnerable in our community and who are most at risk from these changes. I will always be standing up for them and doing all I can to make sure their voice is heard.

I want to thank all the financial counsellors and other advocates who have contacted me with their concerns about these changes, not only for bringing some of these issues to my attention but for everything they do every day to help and protect those who are most vulnerable in our community. The work you do is so tough, but it is so important and it is making a difference to the lives of local people.