Tag: Credit Regulation

As More Households Are Crushed, Bankers Talk Their Own Book On Easing Mortgage Lending Rules!

Guess what, Bankers are looking at ways to ease lending standards to pump the market some more, as bank margins are under pressure at a time when lending growth is already strong, and more households are already in financial difficulty.

The value of new housing loans have risen by 17.9% since March 2023, to $27.6 billion dollars and were up 3.1% in March, according to the ABS.

The ABS also released their latest estimates of real living costs for households, they said Employee households recorded the largest annual rise in living costs of all household types with a rise of 6.5 per cent,

No surprise then that the DFA surveys for April showed a further rise in mortgage stress, to more than half of mortgaged borrowers, with many first-time borrowers and young growing families most exposed. In addition, rental stress remains very high, underscoring the pressures created by bad policy over many years, making housing unaffordable. On my live show coming up on Tuesday, we will look at this is more detail, and do a further post code deep dive.

AMP chief economist Shane Oliver says there might be scope to reduce buffers for people refinancing — the banks already have some room to do that — but cautions against significant changes to lending laws.

“We’ve gone through a very difficult time in the economy in terms of the massive rise in interest rates, and we’ve come through — so far anyway — at a relatively low level of arrears,” he notes.

“That partly reflects the responsible lending that the banks have been undertaking over the last few years. If we had to take a dramatic easing in lending standards, and the rules around that, the risk is that the next cycle could be far worse.”

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
As More Households Are Crushed, Bankers Talk Their Own Book On Easing Mortgage Lending Rules!
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Duck Shooting Season For BNPL?

Buy Now Pay Later loans are finally being finally recognised and regulated as a form of credit, despite the industry saying they do not provide credit. But as I have said before, if it quacks like a duck and swims like a duck – it’s a duck.
Given that up to one third of households have used some form of Buy Now Pay Later in the past year, these reforms are long overdue, not least because we see a high correlation between financial stress and the use of these facilities, and a proliferation of BNPL being used for everyday expenses, energy bills and other essentials, as well as for bigger items like solar panels.

And more than 20% of users end up paying late payment and other fees, and many also can hold multiple BNPL debts at the same time, meantime their finances are not under control. The regulations have come about after concerns that the unregulated nature of BNPL was resulting in lenders charging excessive late payment fees and engaging in unaffordable lending practices that led some customers to experience financial hardship and stress.

So now the government has announced its plans to regulate the buy now pay later (BNPL) sector and consumers could see some big differences to the fees they pay, how they apply for credit and the impact on their credit rating and is now consulting on its plans until mid-April before finalising the legislation, which will probably be introduced into parliament in the second half of this year. The new laws will take effect six months later.

I think the arrangements for small loans of 2000 and below are still too weak, because we see households holding multiple loans at the same time, so the regulations should be higher here. On the other hand given the current tight financial conditions it is important not to cut desperate people off from some financial options other than going to unregulated loan sharks, which do still operate in some more deprived areas.

The underlying issues are the fact that use of credit has now become normalised by society and the financial services industry, when for some households this just creates problems, which ultimately put them in a worse financial position, and of course high inflation costs and low wages growth are a catalyst for financial distress. This is not nanny state intervention, but rather a further small but critical steps to help people make better financial decisions.
However, a bigger emphasis on financial education in schools and a more cautionary approach to debt would ultimately improve the lot of so many Australians. But at least this particular duck is now being recognised for what it is.

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
Duck Shooting Season For BNPL?
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Duck Shooting Season For BNPL?

Buy Now Pay Later loans are finally being finally recognised and regulated as a form of credit, despite the industry saying they do not provide credit. But as I have said before, if it quacks like a duck and swims like a duck – it’s a duck.
Given that up to one third of households have used some form of Buy Now Pay Later in the past year, these reforms are long overdue, not least because we see a high correlation between financial stress and the use of these facilities, and a proliferation of BNPL being used for everyday expenses, energy bills and other essentials, as well as for bigger items like solar panels.

And more than 20% of users end up paying late payment and other fees, and many also can hold multiple BNPL debts at the same time, meantime their finances are not under control. The regulations have come about after concerns that the unregulated nature of BNPL was resulting in lenders charging excessive late payment fees and engaging in unaffordable lending practices that led some customers to experience financial hardship and stress.

So now the government has announced its plans to regulate the buy now pay later (BNPL) sector and consumers could see some big differences to the fees they pay, how they apply for credit and the impact on their credit rating and is now consulting on its plans until mid-April before finalising the legislation, which will probably be introduced into parliament in the second half of this year. The new laws will take effect six months later.

I think the arrangements for small loans of 2000 and below are still too weak, because we see households holding multiple loans at the same time, so the regulations should be higher here. On the other hand given the current tight financial conditions it is important not to cut desperate people off from some financial options other than going to unregulated loan sharks, which do still operate in some more deprived areas.

The underlying issues are the fact that use of credit has now become normalised by society and the financial services industry, when for some households this just creates problems, which ultimately put them in a worse financial position, and of course high inflation costs and low wages growth are a catalyst for financial distress. This is not nanny state intervention, but rather a further small but critical steps to help people make better financial decisions.
However, a bigger emphasis on financial education in schools and a more cautionary approach to debt would ultimately improve the lot of so many Australians. But at least this particular duck is now being recognised for what it is.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

A Predatory Lending Crackdown

ASIC is warning credit providers and debt management firms that strong, targeted action against predatory lending, high-cost credit and misconduct impacting consumers experiencing financial difficulty is expected in the coming months as part of its continuing focus on protecting consumers.

Timely, given the high cost of debt, and the pressure many households and businesses are under. Remember more debt is not necessarily the answer!

https://asic.gov.au/about-asic/news-centre/find-a-media-release/2023-releases/23-122mr-asic-sharpens-focus-on-credit-and-debt-management/

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

The Buy Now Pay Later Credit Card Duck Just Got Shot!

An estimated 7 million “buy now pay later” users will soon see new laws introduced by the federal government that aims to better protect them against financial abuse.

A new Treasury paper released by Financial Service Minister Stephen Jones today suggests buy now pay later players could soon be subject to the same laws as credit card providers, as “unaffordable or inappropriate lending practices are contributing to financial stress and hardship, and other types of consumer harm”.

The paper said there were 7 million active buy now pay later accounts in the 2021-22 financial year resulting in $16 billion in transactions, an increase of almost 37 per cent on the previous financial year.

The Treasury paper makes it clear self-regulation, without some controls, is no longer an option.

It raises a range of issues, noting there’s been reports of “poor complaints handling processes” and that “the lack of hardship assistance for consumers leads to delayed or unsatisfactory remediation”.

Go to the Walk The World Universe at https://walktheworld.com.au/

The Responsible Lending Debacle

We discuss the current Senate inquiry into the proposed changes to responsible lending regulation. Submissions will close on the 3rd February, so its not too late to make a submission, to protect the rights of consumers.

https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/NCCPEcoRocovery

Go to the Walk The World Universe at https://walktheworld.com.au/

APRA Advises Regulatory Approach to COVID-19 Support

The Australian Prudential Regulation Authority (APRA) today confirmed its regulatory approach to the COVID-19 support packages being offered by banks and other lenders to their borrowers in the current environment.

Many banks have recently announced COVID-19 support packages that provide affected borrowers with an option to defer their repayments for a period of up to six months. These packages have mainly been offered to small business and home loan customers.

Where a borrower who has been meeting their repayment obligations until recently chooses to take up the offer not to make repayments as part of a COVID-19 support package, the bank need not treat the period of the repayment holiday as a period of arrears. Similarly, loans that have been granted a repayment deferral as part of a COVID-19 support package need not be regarded as restructured.

APRA will be writing to all authorised deposit-taking institutions (ADIs) to advise them of the specific reporting treatment for loans subject to these support arrangements. APRA will require ADIs to report to APRA, and publicly disclose, the nature and terms of any repayment deferrals and the volume of loans to which they are applied. ADIs must also still continue to provision for these loans under relevant accounting standards.

APRA also confirmed that the Coronavirus SME Guarantee Scheme announced by the Commonwealth Government yesterday is to be regarded as an eligible guarantee by the government for risk-weighting purposes.

In addition, we note that the Government’s package launched yesterday included a relation of bankruptcy and corporate government rules, including the protection of directors responsible for companies who, under normal rules would perhaps indicate their businesses would not be viable.

An Insider Speaks To The People [Podcast]

Here is an extended discussion between Ex APRA/ASIC Executive Wilson N. Sy, Economist John Adams and Analyst Martin North. We look at how banking is regulated and who is really pulling the strings.

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
An Insider Speaks To The People [Podcast]
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Credit squeeze is supply-driven, says Elliott

ANZ CEO Shayne Elliott has told a parliamentary inquiry that banks triggered the credit downturn impacting the supply of housing finance, via InvestorDaily.

Softening conditions in the credit and housing space has sparked debate among market analysts regarding the cause of the downturn, with some stakeholders, including governor of the Reserve Bank of Australia (RBA) Phillip Lowe claiming that the “main story” of the downturn is one of “reduced demand for credit, rather than reduced supply”.

Mr Lowe claimed that falling property prices have deterred borrowers, particularly investors, from seeking credit.

According to the Australian Prudential Regulation Authority’s latest residential property exposure statistics for authorised deposit-taking institutions, new home lending volumes fell by $25.1 billion (6.5 per cent) over the year to 31 December 2018. The decline was driven by a sharp reduction in new investment lending, which dropped by $17.7 billion (14 per cent), from $126.9 billion to $109.2 billion over the same period.

However, the ANZ CEO has told the House of Representatives’ standing committee on economics that he believes the downturn in the credit space has been primarily driven by the tightening of lending standards by lenders off the back of scrutiny from regulators and from the banking royal commission.  

Liberal MP and chair of the committee Tim Wilson asked: “Is the reported credit squeeze more demand-driven by borrowers pulling back or supply-driven by banks being more conservative?”

To which Mr Elliott responded: “This is a significant question that’s alive today, and there are multiple views on it. I can’t portion between those two. 

“I’m probably more in the camp that says conservatism and interpretation of our responsible lending obligations and others has caused a fundamental change in our processes, and that has led to a tightening of credit availability.

“It’s a little bit ‘chicken and egg’,” Mr Elliott added. “If people find it a little bit harder to get credit, they might step back from wanting to invest in their business or buy a home, so I think they’re highly correlated, but I do think banks’ risk appetite has had a significant impact.” 

Mr Elliott said that “vagueness and greyness” regarding what’s “reasonable” and “not unsuitable” as part of the responsible lending test have left the law to the interpretation of lenders.

“Unfortunately, we haven’t always had the benefit of a significant amount of precedence or court rulings on some of those definitions, so we’ve done our best,” he said.

“I think the processes recently, the questions that this committee has asked, the questions in the royal commission, have started a debate, not just with the regulators but with the community about what is the real definition of [responsible] lending.” 

He added: “As a result of that, we’ve become more conservative in our interpretation, and so we’ve tightened up, [and some] Australians will find it a little bit harder to either get credit or get the amount of credit that they would have otherwise had in the past or would like.

“I’m not suggesting for a minute that it’s wrong, it’s just the reality.”

Getting To Grips With Credit Regulation – Part 3 – The Australian Context

On the day before the Royal Commission is set to release their draft report, we have released the latest in our series of segments on Credit Regulation.

This time we look in detail at the Australian context as Professor Gill North discusses the critical issues relating to “Responsible Lending”.

She makes some predictions about what may be coming out from the Commission.

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The previous videos are also still available:

The International Context.

An Introduction.