Digital Finance Analytics (DFA) Blog

My final plea to the Senate to oppose the proposed changes to Responsible Lending rules when its debated tomorrow. We do not need more irresponsible lending, and we need people to champion the interests of ordinary Australians, not just the banking sector.

Apart for significant misinformation and spin about the proposed changes, Commissioner Hayne in the Royal Commission into Financial Services was crystal clear: My conclusions about issues relating to the NCCP Act can be summed up as ‘apply the law as it stands’

The dissenting report from the Senate by Senator Nick McKim Australian Greens Senator for Tasmania makes all the right points:

What this bill boils down to is that people will be left to fend for themselves. As is befitting of this government’s ideology, this bill will shift the burden of responsibility from the bank to the consumer. The vast majority of borrowers will not be provided with the most basic of consumer protection, which is that the product being sold to them is fit for purpose.

This gets to a fundamental question about how markets are regulated and what protections should be provided to consumers. Commissioner Hayne explored this issue at length and highlighted it in the second of four key observations that he made about the misconduct that he uncovered in the Introduction to his Final Report:

…entities and individuals acted in the ways they did because they could. Entities set the terms on which they would deal, consumers often had little detailed knowledge or understanding of the transaction and consumers had next to no power to negotiate the terms. At most, a consumer could choose from an array of products offered by an entity, or by that entity and others, and the consumer was often not able to make a well‑informed choice between them. There was a marked imbalance of power and knowledge between those providing the product or service and those acquiring it.

This is why consumer regulation exists. Because the dream of the efficient-market hypothesis, where well-informed individuals act rationally, seeking out the best deal for themselves, and, in doing so, this bill is designed to let the banks get on with writing loans as big as they possibly can, whether it’s good for people or not, so that they can pay even bigger bonuses and rack up even bigger profits. In a country that already has one of the highest levels of consumer debt per capita in the world, this bill would give the banks a license to entice people into even more debt. Rather than building productive capacity and ensuring individual security, this would further constrain household spending, further constrain innovation, and further lead Australia down the dead end path that is an economy built on ever increasing house prices at the expense of just about everything else.

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