Financial hardship and inclusion
Consumer credit reforms inquiry 2021
In December 2020 the Commonwealth Government introduced the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020. The aim of the Bill 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.
The Bill also introduces some minor amendments to consumer leases and payday loans. Although some of these changes were positive, including the requirement for equal repayments and equal repayment intervals and preventing door to door sales, they represented weakened versions of consumer protections that were recommended in the 2016 review of small amount credit contracts .
In our submission to the Senate Economics Legislation Committee inquiry into the Bill, 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 in response to the 2016 review.
The Committee report
The Senate Committee released its report in March 2021. The report recommended that the Bill be passed, though this view was not shared by all Senators on the Committee.
The Salvation Army is continuing our advocacy against the government’s reforms to responsible lending obligations.
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