Remember the following words. Record them to memory.
Do as I say not as I do.
requirements in relation to the entry into, terms and enforcement of credit contracts and consumer leases.
Specifically, the Act:
contains requirements for persons who are involved in consumers obtaining credit contracts or consumer leases (including both the credit providers and lessors, and other persons such as finance brokers) to be licensed and to comply with responsible lending requirements.
Can TAFKAS repeat the key operating part – persons who are in the business are required to be licensed and to comply with responsible lending requirements. The licence is called an Australian Credit Licence which is issued (on behalf of the government) by ASIC.
And what are the responsible lending requirements? Well, according to ASIC’s RG209, meeting your responsible lending obligations will require taking three steps:
- make reasonable inquiries about the consumer’s financial situation, and their requirements and objectives;
- take reasonable steps to verify the consumer’s financial situation; and
- make a preliminary assessment (if you are providing credit assistance) or final assessment (if you are the credit provider) about whether the credit contract is ‘not unsuitable’ for the consumer (based on the inquiries and information obtained in the first two steps).
Well. When the rubber hits the road.
Can anyone guest what is one of the largest pools of retail loans in Australia that is not mortgages, credit cards or personal loans? Anyone? Anyone?
Well …. They are HELP loans. As in Higher Education Loan Program loans. Still in doubt as to whether it is a loan? Let’s go to the government’s web site ….
How many times does the word loan appear?
And here’s the rub. Does the Commonwealth Government have an Australian Credit Licence and does the Commonwealth Government (through the universities) “take reasonable steps to verify the consumer’s financial situation”?
If you answered no to both those questions, well you have just won yourself a 12 month free subscription to Catallaxy Files.
If it is government policy to place the onus on the lender to assess whether it is appropriate for punters to borrow, why then not apply the same obligation on the government. This might then impact the nature of the courses delivered in Australia’s universities.
Imagine the following. The borrower (the proposed student) has to do the full disclosure to the lender (the government). As part of the disclosure, the proposed student indicates both what they propose to study and then what they plan to do after they graduate. You know, like with a normal loan. What are you going to do with the money and how will you repay?
Imagine that the proposed student indicates that they wish to undertake a 6 year full time degree in Marxist Lesbian Dance Theory (either at La Trobe University or Sydney University, to be determined) and that upon graduation they will then move to Byron Bay to pursue a Newstart Allowance scholarship in vegan activism.
Having acquired a $100K debt accruing compound interest at the Commonwealth Bond rate, it is unlikely that said student would be able to ever repay the debt. Should the government have loaned them the money? Would you lend them money? Would money bags Shorten lend them his personal money? Is that responsible lending? What would ASIC say? What would APRA say?
Shall we ask Commissioner Kenneth Hayne his views? The same Commissioner Hayne from whose Royal Commission flowed ASIC’s analysis that:
has highlighted shortcomings of the Household Expenditure Measure (HEM) – a standard benchmark of people’s annual living expenses used in assessing people’s borrowing capacity.
A measure that apparently the government does not use when it does not asses the capacity of budding Bachelor of Marxist Lesbian Dance Theory candidates to determine whether to lend them money.
Also, would said student, having gone through the loan application process, have pursued their studies in Marxist Lesbian Dance Theory? Would they have gone to university at all in the first place and delayed their Newstart Allowance scholarship in vegan activism by 6 years?
The government claims that the basis of most business regulation is information and power asymmetry. Well then, regulate thyself. Perhaps then the government will better understand the costs and overheads of business regulation, not to mention kept thousands of kids out of indentured servitude. And of course, with luck, there might be fewer Marxist Lesbian Dance Theory graduates pursing careers in vegan activism.
But hang on:
Do as I say not as I do.
Yeah yeah. They will say that it’s not really lending because it is contingent. You only have to pay once you earn over a certain amount. But this is just structuring. Interest accrues irrespective of the earnings of the borrower and the estate of the borrower is still liable upon the borrowers death. Oh and the special bit. You can’t clean the debt slate through bankruptcy like any other loan.
But of course it is negative gearing and capital gains tax that keeps the youngin’s from buying a house.