Sydney, 27 April, 2009: The Australian Bankers’ Association (ABA) notes draft national credit laws which have been released for public comment.

The ABA is pleased there will be a single national regime for consumer credit regulation through the draft National Consumer Credit Protection Bill 2009 which will eventually replace the State-based legislation – the Uniform Consumer Credit Code.

Tony Burke, Acting Chief Executive of the ABA, said: “Banks recognise that many of the provisions in the regime are designed to put an end to predatory and other unacceptable lending practices by fringe credit providers, rather than the banking sector.”

“However, some of these rules go much further and will impose a greater and unnecessary regulatory burden on mainstream lenders who have responsibly provided credit to consumers in accordance with their needs for decades.  The lending performance of banks in this country is in marked contrast to overseas lenders.”

“The additional regulation will inevitably mean an increase in costs for banks in providing consumer credit, there will be more paperwork and it will take longer to deal with loan applications than is now the case.”

In the proposed structure of the licensing and conduct regimes, there are close similarities with the Financial Services Regime that has had to undergo constant revisions to deal with unforeseen consequences since its enactment nearly a decade ago.  The Federal Government needs to avoid a repetition of this.
 
While the Federal Government is suggesting this will improve consumer confidence, the real question for the Government is what will this do for the confidence of the main body of credit providers, which is much needed in the present economic circumstances.  The penalty regime for lenders, in particular, is disproportionate.
           
Hardship threshold

The ABA said the hardship principles recently adopted by banks¹ go further than the new threshold of $500 000 outlined in the draft legislation.

The banking sector doesn’t apply a threshold when assisting customers who are having temporary difficulties in repaying loans.
 
Mr Burke said: “It is important that customers understand that if they are experiencing any problems in repaying their loans, they should contact the bank as soon as possible.”

“Some of the options which the bank might consider include adjusting the terms of the mortgage contract by providing a repayment holiday and interest will be capitalised, or making interest-only repayments for a short period of time.”

Mr Burke emphasised that each customer’s circumstances will be different and so banks will take different approaches to suit each borrowers’ financial arrangements.

The increased threshold will benefit consumers who are unable to have their credit provider consider their hardship application. But this issue applies more to non-APRA regulated lenders than banks.

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