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30 September 2020
Be aware of buyer beware
Even before COVID struck, one in three Australians reported that they found dealing with money stressful. This has only worsened during the pandemic.
Providing targeted financial support to those in need, and resources for Australians to improve their financial knowhow can help navigate the economic crisis and contribute to the recovery effort.
Ecstra Foundation currently supports 95 organisations working with Australians to address their financial issues, and to build community economic resilience and wellbeing. This includes financial counselling organisations, community legal services, community organisations, educators and charities.
Financial education is important but it is no panacea for a strong consumer protection regime, backed by the threat of regulatory consequences.
The Federal Government’s announcement that it intends to roll back the National Consumer Credit Protection Act’s Responsible Lending Obligations (RLOs) is perplexing.
The aim of loosening credit requirements is to encourage the banks to lend more and faster, turbo-charging the flow of credit through the economy.
The proposal expressly shifts the focus from ‘lender beware’ to 'buyer beware’ in the process. This has infuriated consumer advocates, who argue that winding back crucial customer protections during a recession will load desperate Australians with even more debt.
The persistent asymmetry of power and information between the finance industry and their customers should be debated as part of the RLO proposals.
Buyer beware implies that consumers can somehow educate themselves into a level playing field with financial institutions. This is a falsehood. The aftermath of the Global Financial Crisis and the findings of the Banking Royal Commission are as salient as ever. Trusting banks and non-bank lenders just to do the right thing does not work.
Post Banking Royal Commission the regulatory focus is on protections for vulnerable consumers, product design and distribution powers and increasing the punitive responses to irresponsible bank behaviour.
There are many organisations engaging with this work through the National Financial Capability Strategy, including government, regulators, intermediaries, educators and community organisations.
Regardless of the regulatory landscape, Australians should still expect to actively engage with their finances, to improve their personal financial literacy and to plan for an uncertain economic future.