New consumer credit reforms introduced into Parliament

by Madison Utley09 Dec 2020

Following new Consumer Credit Reforms being introduced into Parliament earlier today, 09 December, the Mortgage & Finance Association of Australia (MFAA) has reiterated its support for the way the changes are geared towards improving efficiency and prioritising consumer outcome in the finance sphere.

The bills introduced today form part of the government’s larger-scale commitment to credit reform, including the relaxing of responsible lending rules to help improve the flow of credit and reduce the time it takes consumers and businesses to access finance, enabling Australians to spend more and businesses to be able to invest and create jobs – a "key part" of the nation's economic recovery plan, according to the federal government. 

Following the reform first being proposed earlier this year, the MFAA used its submission to Treasury to address concerns certain consumer advocacy groups had voiced, breaking down how the changes will ultimately lead to better outcomes for Australians.  

MFAA CEO Mike Felton emphasised the new rules provide much-needed clarity for all parties involved in home lending, which will ultimately benefit Australian borrowers.

“As long as lenders and brokers have a clear understanding of their individual responsibilities and obligations, the changes will refocus responsibility on the appropriate industry participant,” he said.

“Lenders can focus on their risk-based lending policies and ensuring loans are affordable for individual borrowers, leaving brokers free to focus on customer needs, objectives, priorities and preferences, with a Best Interests Duty to help ensure they act independently of lenders and continue to deliver great customer outcomes.”

Felton highlighted that a clearer understanding of each party's individual responsibilities, including the incoming higher legal duty for brokers, means the Consumer Credit Reforms are actually a “step forward from responsible lending”.

“From the customer’s point of view, the strongest possible protection is the knowledge that their broker will always act in their best interests. From 1 January 2021, customers will have the comfort of knowing that mortgage brokers will operate under a legal Best Interests Duty,” he added.

“The Best Interests Duty actually represents a higher standard than responsible lending. Under these proposals, the Best Interests Duty will be expanded so that all consumers obtaining credit assistance through a broker will be protected by this unrivalled higher duty, providing yet another compelling reason to use a broker.

“I fail to see how this can be viewed as anything but a better outcome for borrowers, however I look forward to discussing with the consumer advocacy groups to hear their concerns. I believe we are on the same page in terms of wanting the best possible outcome for customers.”

The proposed changes also seem sure to improve efficiency by removing unnecessary barriers to the flow of credit and allowing for faster turnaround times for credit application processing for consumers.

“These changes finally allow the removal of the unworkable ‘one size fits all’ responsible lending regime, as lenders will now be required to engage in risk-based lending that is attuned to the individual circumstances of the borrower and credit product,” Felton said.

“This more considered approach will eliminate the almost-forensic examination of consumer discretionary living expenditure required of brokers under responsible lending. This created inefficiencies and uncertainty because instead of primarily representing consumers, brokers were also sitting in judgment of them.

“Going forward, the industry will place greater reliance on information provided by the borrower, and their ability to adjust future spending habits. Legal responsibility for assessing loan affordability will be with the lender – where it should be, whilst brokers will have a higher legal duty to act in the best interests of the consumer, which will be a powerful differentiator for the mortgage broking industry.”