Frydenberg pumps looser lending

Ian Rogers Finance regulation

It looks like the politics may crowd out expert policy analysis and reform, at least in the highly charged world of home loan credit supply.
The Financial Review this morning has the drop on a speech to be delivered today by Josh Frydenberg, a treasurer taking to hectoring on a topic already consuming regulators.

Frydenberg will call for "appropriate" adherence with responsible lending rules imposed on the lending sector in via the National Consumer Credit Protection Act in 2009.

In a nod to the populist thinking informing his intervention today, the treasurer will call for "personal responsibility and personal accountability", the AFR reports.

"It’s in everyone’s interest that the aspirations of hard-working families are not collateral damage in this regulatory process ... If responsible lending laws are applied too stringent, they will also negatively impact consumer behaviour," the AFR reports based on an advance copy of Frydenberg's speech.

So far there are no more than slender signs of a revival in housing and mortgage credit.

On Monday, the Council of Financial Regulators summed things up this way: "Subdued credit growth has been primarily driven by weaker credit demand, though loan approvals have picked up recently.”

Moody's Investors Service, in a report this week, assumes that “credit growth will remain low, at around 4 per cent” and, contra the boosterism in the government’s message, Moody’s also assumes “banks will maintain stringent underwriting practices.”

Financial Regulators at their quarterly meeting “discussed progress with updating the guidance regarding responsible lending provisions in the credit act,” which falls under ASIC’s portfolio.

“The updated guidance should provide greater clarity about what is required for a lender to comply with its obligations, taking into consideration enhancements to lending practices, the impact of competition from new market entrants, as well as enhanced access to and usage of consumer credit data and technological tools,” the COFR said.

ASIC has been consulting with the industry for months, a dialogue side-swiped by the adverse ruling of the Federal Court last month over any penalties that might apply to thousands of breaches admitted by Westpac.  ASIC has appealed this decision.

Anna Bligh, chief executive of the Australian Banking Association recently used language that parallels the themes being pushed with more vigour by the government.

The imposition of strict serviceability rules could lead to perverse outcomes, she said at the time.

In a submission to ASIC, the ABA argued “a more prescriptive approach may result in delays in obtaining credit, increases in the cost of credit and limit consumers’ ability to change credit providers.”