Consumer groups and some leading economists have warned a government plan to axe responsible lending rules could add fuel to the housing boom by easing credit while prices are already surging due to ultra-low interest rates.
In a move that is supported by banks but opposed by consumer advocates and the federal opposition, the government is planning changes that would mean banks are no longer subject to responsible lending obligations.
The government says the overhaul, announced last year amid fears of credit drying up, will make it easier for consumers to borrow money while still protecting vulnerable customers. Banks say it will lead to simpler loan applications without allowing people to necessarily borrow more.
But with house prices and new mortgage lending taking off in recent months, consumer groups and economist critics say making it easier for people to get credit could fan the flames of the housing boom.
Consumer groups that have long opposed the change on Monday wrote to Reserve Bank governor Philip Lowe, who is also chair of the Council of Financial Regulators, urging the council to reconsider its public comments on the rollback in light of “significant changes in the risk environment”. The council said in October the changes “would support the supply of credit,” and banks would still be required to lend prudently.
Choice chief executive Alan Kirkland argued customers were at greater risk of irresponsible lending in a housing boom because rising prices put pressure on people to move quickly.
“When you’ve got a hot market that buyers are desperate to get into, that places borrowers, particularly first home buyers, at risk of predatory lending,” Mr Kirkland said.
He said the advocacy groups, which also included the Consumer Action Law Centre, Financial Counselling Australia and Financial Rights Legal Centre, believed rolling back responsible lending laws would further push up prices by releasing more credit into the system. “It’s simple economics,” Mr Kirkland said.