MIKE CARLTON:
You hear it every half an hour these days in the news, don't you, the global financial crisis, recession, times are tough?
It all sprang, as we know, from bad loans, really bad loans handed out to people who couldn't afford it; irresponsibly handed out.
But now that's spread and a lot of decent people are doing it tough, and many trying to find ways of paying back the mortgage, and not always successfully. It is tough out there.
SANDY ALOISI:
Especially, if in some cases they happen to lose their jobs. How do they hold onto their homes?
Senator Nick Sherry is the Superannuation and Corporate Law Minister; he's on the line.
Good morning.
NICK SHERRY:
Good morning. Good morning to your listeners.
MIKE CARLTON:
You're planning some changes today for people doing it tough with their mortgages?
NICK SHERRY:
Yes, we are, Mike. We're introducing new national laws. Currently the states regulate consumer - what is known as consumer credit.
One of the important changes we're going to make is we're lifting the threshold. Currently, if you have hardship on your credit contract - this includes a mortgage - the limit is $312,400 - up to $312, 400 in the size of the loan. We're increasing that threshold to half a million dollars...
MIKE CARLTON:
This is getting a bit complex. Up to that threshold, you're allowed to go to your bank and say, look, can you help me here, right?
NICK SHERRY:
Correct.
MIKE CARLTON:
Yeah. And you're lifting the threshold to $500,000?
NICK SHERRY:
Correct.
MIKE CARLTON:
Right. So how does the help work?
NICK SHERRY:
Well, what happens is you apply to your financial institution; we're not just talking about banks here, there are a number of different types of credit providers. They carry out an assessment. They may, on the grounds of hardship, postpone enforcement proceedings. You may get relief on either the principle or your interest rate.
Then if the bank doesn't agree, you can take it to appeal, to an independent low-cost appeal process and they will hear that appeal.
MIKE CARLTON:
Mmm.
NICK SHERRY:
But the - we're announcing a number of other changes today. Lifting this threshold to seek assistance is one change.
For example, a major new aspect of the law will be responsible lending provisions, where the lenders will now have to assess your capacity to repay the monies you are borrowing as well as the suitability of the product. That will be a very major change in Australian law and a very major improvement and protection for consumers.
SANDY ALOISI:
Because I suppose, Senator, when I think back to our first home loan, it was really tough to prove that you could repay it. But then, in years that have ensued since then, it's become so much easier; and we all talked about easy credit, didn't we?
NICK SHERRY:
Well, we did. And as was mentioned in the introduction, this was - what happened in the United States ultimately helped bring down their financial system.
Now, we've had nothing like what happened in the States, but we have had irresponsible lending at what I'd call margins of our financial system. It's time to clean it up, minimise it and ensure we have responsible lending, a much greater focus on responsible lending in Australia. As I say, it's ...
MIKE CARLTON:
Oh, well, what will the penalties be though? I mean, if you find that a bank or a lending institution has handed out loans willy-nilly irresponsibly, what's the penalty for it?
NICK SHERRY:
Well, there'll be graduated penalties. You will get what I would term on-the-spot fines.
MIKE CARLTON:
Yeah.
NICK SHERRY:
And then, if you continue to repeat, the fines will be increased; and ultimately, you could lose your licence as a provider.
MIKE CARLTON:
Right...
SANDY ALOISI:
How big would these fines be?
NICK SHERRY:
I'm sorry, I missed that.
SANDY ALOISI:
How big would the fines be?
NICK SHERRY:
The details of the fines I'll be releasing this morning.
SANDY ALOISI:
Okay.
MIKE CARLTON:
All right, but could not - if a contract is - it can happen now, but is - are you toughening this up? If a contract is deemed to be unfair and unreasonable and that the, you know, the borrower has no chance of really making it, can you cancel that?
NICK SHERRY:
Oh, the independent disputes organisation, yes, they...
MIKE CARLTON:
Yeah. Okay...
NICK SHERRY:
... they will have the power to cancel that.
MIKE CARLTON:
And yeah, and throw it back on the banks; all right. That'll be interesting; we'll look forward to that. Good on you.
NICK SHERRY:
Okay. Thanks. Good morning.
SANDY ALOISI:
Thank you...
MIKE CARLTON:
Thanks very much. Senator Nick Sherry, Superannuation and Corporate Law Minister.
SANDY ALOISI:
But doesn't that make sense? If you lose your job and you just can't meet your mortgage repayments...
MIKE CARLTON:
Yeah.
SANDY ALOISI:
... that the bank gives you, like an extended holiday from having to either pay your principle or pay your interest until...
MIKE CARLTON:
Mmm.
SANDY ALOISI:
... you get yourself back on your feet, because of what use is the - is a house that has to be repossessed to the bank?
MIKE CARLTON:
Well, what you're saying, that's right, yeah. When I went for my first mortgage, I was in my late twenties, I suppose, early thirties.
SANDY ALOISI:
Yep.
MIKE CARLTON:
I was terrified; it was like going to see the school principal. You walked in there on your best behaviour and your shoes shined and polished and you sat down neatly, didn't you?
SANDY ALOISI:
And I think from memory that bank only took into account a quarter of my salary...
MIKE CARLTON:
Whatever it was.
SANDY ALOISI:
... because they kept saying, well, you're the little wife, you'll go off and have kids.
MIKE CARLTON:
These days, they're throwing - well, they were last year...
SANDY ALOISI:
Yep.
MIKE CARLTON:
... and the year before, throwing money like water, you know. Please, you know - just amazing. And look at the trouble that got us into.