Women’s financial security will be further eroded by weakening consumer credit protections

The Federal government has proposed changes to the National Consumer Credit Protection Act which will, it says, make credit more accessible to individuals and small businesses during the recovery period from COVID-19. However, these changes have been critiqued as a way to circumvent some of the recommendations from the Banking Royal Commission. In today’s analysis, Lily Gardener and Madeleine Ulbrick (@MaddyUlbrick), both of Good Shepherd Australia New Zealand (@GoodAdvocacy) summarise their submission commenting on the Amendment, detailing how such changes are likely to further disadvantage women who are still struggling from the pink recession.

Consumer protections have been in the headlines

Community interest in the Royal Commission into Misconduct in the Banking, Superannuation and Finance Industry (RC) was immense. More than 10,000 submissions were received, live streamed coverage of the hearings dominated the media cycle, #BankingRC trended on Twitter, and council assisting temporarily became social media stars. Importantly the voice of the customer was elevated and community expectations were applied to the actions of banking and financial institutions.

The Final Report of the RC was released in February 2019 and made 76 recommendations. It highlighted that Australia’s banking and finance sector was driven by greed and was not acting in the best interests of their customers. This probably was not surprising for everyday Australians, yet there was an expectation that the sector would do better.

Hence the Governments proposed National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 (‘The Bill’) is perplexing. Its proposed relaxation of consumer protections and legal rights directly contradicts Commissioner Hayne’s first recommendation: existing responsible lending laws should be retained.

What proposed changes to responsible lending laws would mean to women

The abolition of responsible lending obligations will have disastrous outcomes for people experiencing financial hardship. Women, who do a disproportionate share of unpaid work and are more likely to live in households below the poverty line than men, are likely to fare much worse.

The Federal government’s proposed changes to lending laws won’t be enough to protect financially vulnerable customers - many of whom are women. Photo by Atilla Bingöl on Unsplash

The provisions in the Bill relating to small amount credit contracts (known as payday loans) and consumer leases will not effectively protect people from predatory conduct. Research conducted prior to the pandemic indicates that the percentage of women accessing payday loans increased 62% from 2016 to 2019, and 40% of these women were single mothers – the poorest households in Australia. Women escaping family violence and experiencing financial hardship are also a much higher risk of accessing predatory loans. While few have looked specifically at these links, there is some evidence that women experiencing family violence and financial hardship are susceptible to predatory loans to bridge the gap during times of financial hardship.

Additionally, the Bill seeks to remove the requirement for lenders and brokers to understand the needs and objectives of borrowers, and to verify information provided on loan applications (except in limited circumstances). Currently these checks and balances can be used to identify red flags for financial abuse. Its removal will have grave outcomes for victims of economic abuse as a form of family violence. At present there are no legal protections for victims of coerced debt abuse in the lending space. The laws that govern ‘sexually transmitted debt’ cannot protect victims of economic abuse where a perpetrator has used debt to exercise coercive control over a partner in the context of a violent relationship.

Coerced debt is a common factor preventing victim/survivors from leaving a violent relationship and re-establishing their lives. It has been well documented that rates of family violence and economic abuse have risen sharply during the COVID-19 pandemic. Removing these critical protections at a time when so many women are more vulnerable than ever to economic abuse could have devastating results.

Furthermore, removing responsible lending obligations will enable lenders and brokers to aggressively push credit onto their customers. Watering down credit protections will leave individuals and families at severe risk of being pushed into credit arrangements that will cause harm and financial detriment in the long term. Significantly, it will increase household debt, which is already close to the highest levels globally, as many Australians struggle to meet their living costs.

Consumer protections are linked to the pink recession

We know that over-indebtedness can result in significant longer-term impacts on individuals as it affects their capacity to provide for housing, health, education and retirement. Debt can also have a harmful effect on relationships with family and friends, increase isolation and exacerbate mental health issues. The increased economic vulnerability and uncertainty caused by the COVID-19 pandemic makes retaining consumer protections even more important.

Removing responsible lending obligations will result in more Australians burdened with harmful debt, with no access to recourse or remedy. These proposed changes come as we seek to recover from the economic costs associated with COVID-19 and as the Coronavirus Supplement and JobKeeper are rolled back.  Disadvantaged households, many of whom are headed by women, will face increased risk from predatory lending practices. This cannot be the answer.

We need to work toward ensuring a balance between consumer choice and consumer protection, safeguarding people on low and middle incomes who access credit through these channels from becoming financially stressed. Recovering from the ‘pink recession’ needs a holistic approach that addresses not only the employment needs for women, but also access to safe and fair credit.

This analysis draws from Good Shepherd’s full submission to the Senate Economics Legislation Committee’s inquiry on the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 (the Bill), which can be found here.

This post is part of the Women's Policy Action Tank initiative to analyse government policy using a gendered lens. View our other policy analysis pieces here.

Posted by @SusanMaury