Credit unions, building societies urge Govt to focus on responsible lending, not red tape

27 April 2009

Credit unions and building societies have supported the Federal Government’s moves today to introduce national consumer credit laws, but have warned the Government against repeating the mistakes of the Financial Services Reform (FSR) regime.

“Credit unions and building societies applaud the principles behind this legislation – responsible lending and better consumer protection are central to the ethics of mutual banking organisations,” said Ms Louise Petschler, CEO, Abacus – Australian Mutuals, the industry body for credit unions and mutual building societies.

“But there is a fine balance between protecting consumers and burying responsible lenders in meaningless red tape.  We think there are parts of this legislation that focus too much on disclosure to consumers.  We know from the FSR experience that lengthy disclosure documents don’t actually help consumers at all.”

Abacus strongly supports the introduction of a national consumer credit regime that will replace the highly ineffective State-based regimes.  The introduction of uniform licensing and the requirement for all lenders and brokers to be part of an external dispute resolution (EDR) scheme will also level the regulatory playing field and improve outcomes for consumers.

“Credit unions and building societies are highly regulated and have had ASIC-approved EDR schemes for years.  It is an important step for all consumers to be able to seek compensation against dodgy lenders and brokers through low-cost EDR” said Ms Petschler.

The new laws will also introduce responsible lending requirements for all lenders and brokers.  Credit unions and mutual building societies are already responsible lenders with  the lowest arrears rates on loans of any other group of lenders.

“The responsible lending principles in this legislation will put welcome pressure on fringe lenders and protect consumers from predatory lending.  Mainstream lenders like credit unions and building societies will easily meet the requirements.”

Credit unions and building societies are urging the Government to focus on the main elements of the regime and not get caught in the FSR disclosure trap.

“The benefits of this legislation will be lost if it becomes a red tape nightmare like FSR.

“The compliance costs incurred by responsible lenders are ultimately borne by consumers. Focus the legislation on the poor behaviour of dodgy lenders and brokers - don’t drive up the cost of borrowing with ineffective red tape” said Ms Petschler.

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