10 December 2020

Doorstop interview, Parliament House, Canberra

Note

Topics: Consumer credit reforms.

Michael Sukkar:

Thanks so much for coming down, everybody, today. Myself and the group standing behind me who I’ll introduce you to in a moment, have met in relation to the Government's changes to consumer credit.

We have representatives here from the Mortgage and Finance Association, the Automotive Dealers Association, the Federal Chamber of Automotive Industries, from the Master Builders Association, from the HIA, COSBOA and ACCI, I think I've got them all, which represent hundreds of thousands of Australians and indeed millions of Australian businesses. What we were speaking about today, and the Treasurer joined us, was our changes to consumer credit, which are going to assist to fuel the comeback in 2021.

We know over recent years, particularly since the Responsible Lending Laws were put in place as a result of the GFC, that more and more red tape and more risk aversion amongst lenders because of those rules, has meant a significant tightening of credit.

A significant tightening of credit means a few things. It means the first home buyer finds it harder to get a loan to buy that first time. It means a small business which has their personal home as an asset as part of their broader small business borrowing, are unable to get that overdraft. We heard examples in the roundtable today, of a first time buyer, Mark, who had pre-approval from his bank, he went and bought his home in between that contract date and settlement, he got a promotion at work, he notified his bank of that promotion and they had to then reassess his entire pre-approval because his circumstances had changed, which jeopardized his ability to be able to actually make the final payment and settlement. We heard other examples today of small businesses having to obtain finance offshore rather than finance in Australia because the appetite for risk is so low as a result of the very restrictive Responsible Lending Obligations that are in place in Australia.

So these changes, which were announced or introduced into the Parliament, are going to help fuel the comeback in 2021, assisting Australians and small businesses to obtain the finance they need to create jobs.  These measures are not about banks. These measures are not here to help lenders. These measures are here to help everyday Australians.  People who want to go about their lives, go about their business, have good businesses, are good credit risks, and should be given the opportunity to get that finance and that's what these laws do and they balance the consumer protections by ensuring that the APRA lending standards will continue to apply to provide those consumer protections.

So I might now ask some of the representatives of the organisations that I mentioned earlier, just to give their perspectives on the Government's responsible lending and credit access changes, and I might start with Denita from the Master Builders Association.

Denita Wawn (Master Builders Association):

Thank you, Minister. Certainly from Master Builders’ perspective, our concern has been the accessibility of home lending, particularly at a time when we've had such success with HomeBuilder. We've heard stories over the last couple of months of people being eligible for HomeBuilder, but actually finding it difficult to access credit because of the length and delays and the denial of credit for them to utilize that support from the Government that in turn is enabling economic activity to return to a positive position in our economy.

So we believe both in terms of the consumer benefit, whether they are a home borrower or a small business, which so many of our industry are small businesses, we need to take away the onerous aspects of our credit laws, but still ensuring the proper protections are in place.  We think this legislation does that and we're strongly supporting the passing of this to ensure that we've got greater access to credit to enable economic activity to return in 2021. Thank you.

Michael Sukkar:

Thank you, Denita.

Perhaps Mike from the Mortgage and Finance Association.

Michael Felton (Mortgage and Finance Association):

Thank you, Minister.  We are very supportive of these reforms. I represent 13,500 brokers who in turn deal with 60 per cent of all customers taking out a mortgage. And every broker will be able to tell you examples of where loans have been over conditioned, inappropriately conditioned, or where a customer's personal circumstances, individual circumstances, haven't been taken into account when their credit was assessed. These reforms change that. That will result in a far more efficient credit market.  You'll have customers that are looked at on a risk-based assessment.  That should reduce turnaround times and at the end of the day, result in a further protections. Those customers that in the past have not been able to access credit despite being worthy borrowers, will now be able to do so. You'll also have a better understanding amongst lenders as to what their obligations are and in fact, greater obligations are written into the law, which can only be of benefit to consumers going forward.

We are very supportive of these reforms. Thank you.

Michael Sukkar:

Thank you, Mike. Perhaps Tim from the HIA.

Tim Reardon (HIA):

Since the GFC, we've seen a range of belt and braces style regulations restricting access to finance, particularly for first home buyers. So this is a very important first step to winding back those overly onerous restrictions. In 2018 alone, we saw the time frame for a mortgage assessment go from two weeks to two months. We saw the number of first time buyers being rejected go from around about seven to nine per cent to almost 20 per cent.  That has kept a cohort of first time buyers out of the housing market and reduced home ownership rates in Australia. So this is a very important first step to addressing those additional restrictions that we've seen. Thank you.

Michael Sukkar:

Thank you, Peter from COSBOA.

Peter Strong:

Thank you very much. We have the opportunity to grow manufacturing, to add to value adding to where agricultural products, for example. There's a lot of desire out there and there’s desires from governments, etc., to get that going. But we have a financial sector that we know is not going to fund these things unless you've got a house and you own it and that's probably all you have to have because they're not going to fund you otherwise.  If you've got a good business plan, they're not going to fund you if you know what you're doing. We have great business advisers in this country, we have good accountants, we have good bookkeepers but we've got a finance sector that is so scared that it can hold back our manufacturing sector.

I have a friend of mine, the Minister mentioned. He is in Canberra, he runs a production company, very successful, been running it for 20 years. He wanted to run a new production, would go for six months, would employ about 50 people.  Couldn't get the money, flew to England, got the money and flew home.  That should not be happening. That's 50 jobs that might not have happened, except that he put his hand in his pocket and flew to England.

So we've got to make sure that the finance sector is fit for purpose and helps the economy recover and then grow and then make sure we remain a sovereign nation. Thank you.

Michael Sukkar:

Good on you, Peter. Thank you. Maybe dovetailing in there, Ross, from ACCI.

Ross Lambie:

The Australian Chamber of Commerce and Industry very much support these reforms.  If we are truly to have a business-led recovery, which the economy will need, then small business is going to have to be at the heart of that recovery. So we really need to make it easy for small businesses to be created, to be operated and to be growing, because that's what's, at the end of the day, is going to produce the jobs that we need in this economy.  It pays the wages to support the spending to drive the recovery.  These reforms go a considerable way for enabling those conditions to take place. Thank you.

Michael Sukkar:

Thank you, Ross. Maybe James from AADA who represents car dealers.

James Voortman:

Thank you, Minister. The automotive industry will definitely support these changes. The changes to responsible lending will help customers and those businesses that dealers service to better participate in the recovery that this country desperately needs.  The car industry has been experiencing declining sales for two and a half years and if you ask all of the 3,000 dealerships across Australia for the number one reason, it is difficulties in accessing credit.  So we welcome these changes today and we urge the Parliament to pass them as soon as possible. Thank you.

Michael Sukkar:

Thank you, James. And a good segway is probably Tony from the FCAI. Tony Weber.

Tony Weber:

Thank you. Overregulation of the credit markets doesn't help the automotive industry. It's an anchor on the economy. It affects in a negative way, car sales, which in turn leads to an older fleet which means less safety and you also have poor environmental outcomes. These issues need to be addressed in a sophisticated economy.

Michael Sukkar:

Thank you, Tony. Well look as you've heard there, representatives, as I said at the beginning, of hundreds of thousands of businesses, millions of Australians, are all supporting these changes, which again are motivated by creating jobs and motivated by ensuring that Australians can get the credit that they need, whether that's the first home buyer, a small business owner or any other Australians. So can I thank all of the representatives behind me for constructively engaging with the Government on this?  We will continue to work with them over the summer as to the implementation of these changes, which we're seeking to commence by the end of March.  I'm happy to take questions in the meantime.

Journalist:

Minister there are concerns that making it easier to borrow will increase the risk of financial abuse. Do you recognize that as a potential consequence?

Michael Sukkar:

Well, as I think we've all heard today and you've heard from all of the industry representatives behind me, there is absolutely a desire from the Government and indeed from all industry groups and others, to ensure that vulnerable consumers are protected.  For example, in the changes that we've announced, we have maintained Responsible Lending Obligations for small amount credit contracts, for example, and consumer leases, which tend to be consumers who have a lower credit standard which is why they go to those sorts of products. So we've maintained the Responsible Lending Obligations for that cohort of consumers but more importantly, what we don't want to see is what is occurring at the moment, which is really a box-ticking exercise. Mark, the first home buyer I spoke about at the beginning, who had to go through an entirely new application, which nearly jeopardized his ability to settle on a property just because he got a promotion in his job. And just because somebody had to tick a box because of the overly prescriptive rules that are currently in place. So we think these absolutely walk that fine line between protecting those vulnerable consumers but also ensuring that every day Australians can get the credit they need.

Journalist:

Labor says that the housing market is rebounding.  At least in that sector, there's no real sign of a restriction on credit anymore that there might've been in the past. What do you say to that?

Michael Sukkar:

Well, the housing market has rebounded due to a number of factors. We would notably point to HomeBuilder, a Morrison Government initiative that the Opposition opposed and the First Home Loan Deposit Scheme. But at the end of the day, John, what we don't want is a handbrake on the housing market and a handbrake, particularly for first home buyers. Tim Reardon, his point I think, rebuts the Labor Party very strongly. What we've seen is, in 2018, approval times go from two weeks to two months. And for first home buyers, the knock back rate on loan applications went from 7 per cent to 20 per cent with no material change in the market between those two points in time. So I think that shows very strongly that the strength in the housing market is in spite of the restrictive credit. It doesn't absolve the restrictive credit that is in place and is a significant problem.  So we think that this is great for first home buyers and that's another motivation.

Tim Reardon:

It is far easier for a first home buyer to service a mortgage now than it has been at any time in the past 20 years.  Despite that it is much harder for them to get a mortgage now than it was prior to the GFC and that's despite mortgage delinquencies remaining astronomically low in Australia.  Even after this shock, we're looking at the Commonwealth Bank reporting mortgage delinquencies of 0.1% of their loan book. That is an incredibly conservative lending environment, extremely risk averse, and there is an opportunity there to allow more first home buyers into the market by easing those restrictions we've seen come into place over the last decade.

Journalist:

Those figures you mentioned, the delay blow-outs, are from when?  From what point in time, to what point in time?

Tim Reardon:

From the start of 2018 to the end of 2018.

Journalist:

How do you prevent people from falling into debt spirals?

Michael Sukkar:

Well, the entire regulatory framework in addition to the desire of any lender is that, and I should start with broad principles. There's no motivation for a lender to lend to someone who can't repay the loan.  You only make money on the loan if they are able to repay it.  We have a very strict regime around consumer protection, whether it's from APRA, whether it's ASIC presently, or even ASIC for non ADIs under these changes, whether it's the Responsible Lending Obligations that we’re maintaining for that cohort of very vulnerable consumers. So that applies layer upon layer upon the basic principle, which is you only want to lend to someone who can repay the loan. That's the only way you make money as a lender. So our view is that the protections are strong, the protections are there and what they're doing is they're catching, in that net of protection, they're catching people who are very good credit risks, who on any measure, are worthy customers, but they're being knocked back, not because the lender doesn’t think they're a good bet, but because the regulatory risk is too great. So we think the regime for protection is there.  As I’ve said, we’ve maintained it for the cohort of consumers that we think need it most but we are going to ease it for everyone else.

Journalist:

I recognize that it applies to things like payday loans. How about people who might be forced to take out a bank loan or a car loan by an abusive partner? How would you stop that from happening?

Michael Sukkar:

Peter Strong actually raised a very good point which sort of touches on your question.  What the current restrictive lending rules do is a couple of things. They push people into credit cards because if you can't get the finance you need through an overdraft or through releasing equity in your home or whatever it might be, you are then forced to those sorts of products, much more so, and you're paying higher interest rates, they're inferior products. So these changes, if anything, we'll ensure that that doesn't happen.

But as far as abusive partners and abusive relationships, this does not alter those rules at all, as they apply to someone who would be coerced, someone who against their own will is doing these things, these don’t touch on that at all.  If anything, these changes will mean those high-interest products are less likely to be the backstop because people will have credit.

Thank you everyone.