The Senate’s Economics References Committee tabled its ‘Post GFC Banking Sector’ report late last week. Jon Denovan from Gadens Lawyers summarises the findings:
According to the report, the number of disputes referred to EDR increased since the GFC, with the biggest increase relating to financial difficulty. However, this increase largely arose from the commencement of the NCCP Act, rather than the GFC directly.
The subject of low-doc loans proved a hot topic, with Denise Brailey, of the Banking and Finance Consumers Support Association, alleging that there’s a potential for a significant amount of loan application fraud and lending maladministration for low-doc loans.
The committee responded by noting that the regulation of low-doc lending changed with the introduction of the NCCP Act and said they were satisfied that the responsible lending obligations are having an impact.
In response to Brailey’s comments, ASIC said it had not identified widespread evidence of “systemic” misconduct in the banking sector along the lines suggested.
It was also noted that ASIC had requested Brailey, on a number of occasions, provide ASIC with additional information and specific evidence of misconduct in the banking sector, but that the evidence had not been provided.
The committee also made the point that, as a result of Brailey’s website, a number of borrowers had written letters, generally making broad allegations of misconduct - but which failed to contain any specific evidence of wrong-doing.
Brailey also suggested that the government is holding “tainted” securities and profiting from them in the AOFM fund. AOFM officers advised the committee that the vast majority of loans were mortgage insured, its portfolio was performing very well – and that less than 2% of AOFM’s investments are linked to low-doc loans.
In its conclusion, the committee stated that it wishes to ensure regulatory settings in the financial sector encourage entrepreneurial activity and allow sufficient flexibility for parties to enter into agreements that best suit the particular circumstances of the operation.
“Rather than recommence…government intervention for small business finance, the committee considers it would be preferable for the industry to work on solving the evident problems.”