Annette Ellis (Canberra, Australian Labor Party) Share this | Hansard source

I rise today to speak on the Financial Sector Legislation Amendment (Trans-Tasman Banking Supervision) Bill 2006. This bill implements legislative amendments to promote a joint approach to trans-Tasman banking supervision as a step towards a seamless regulatory environment for banking services in Australia and New Zealand. Labor supports this bill, but I strongly support the amendment moved by my colleague the member for Hunter which:

(1)

notes that in both Australia and New Zealand there has been a significant increase in the number of low documentation loans approved in recent years and the role of mortgage brokers in securing these loans; and

(2)

calls for uniform regulation of mortgage brokers”.

It is unfortunate that there is a need to move this amendment but I feel compelled to speak about this subject because it affects so many people in my electorate and, in fact, throughout Australia. The Consumer Law Centre of the ACT investigated house repossessions in the ACT Supreme Court between 2002 and 2005. They published their findings in the report entitled They want to take our house. The report found that there was a 39 per cent increase in the number of house repossessions in 2005 from the prior average. Unfortunately, data suggests that there has been an even greater increase in 2006. This dramatic increase in the number of house repossessions is of great concern to me and to those of us on this side of the chamber. People’s lives, peace of mind and happiness are at risk here. The increasing pressures on families with rising interest rates and increasing living costs makes this situation even more difficult.

The Consumer Law Centre of the ACT report shows a link between home repossessions and non-bank lenders. For example, of the repossessions between 2002 and 2005, an overwhelming 68 per cent of actions were taken by non-bank lenders. In 2005 this percentage increased to 73 per cent. I have several concerns about the practices of non-bank lenders. Firstly, their customers are often very confused about exactly who is giving them the loan. Earlier this year I had a visit from a constituent who had been to one company for a home loan—in fact, it was a mortgage broker that he had seen—only to discover later that he had taken a loan with a completely different organisation. There may be some who would guffaw or laugh at this and say, ‘Didn’t he know what was going on?’ but his confusion was probably exacerbated by the fact that English was far from his first language and he was obviously not very experienced in the practice of obtaining loans or in business practice generally. I wonder how many other people find themselves confused during this process.

Another concern is that most non-bank lenders use ‘no-doc’ or ‘low-doc’ loans. With these loans, the requirements for the lender to verify a borrower’s income are significantly weaker than for banks. The lenders depend on the mortgage broker for correct information about the financial status of the borrower—and, unfortunately, that does not always occur. I am sure many people do not realise that non-bank lenders do not have to meet the same regulations as banks.

The Consumer Law Centre report also found that people with loans from non-bank lenders are charged higher fees and that they pay higher interest rates than for loans from banks or credit unions. It is no surprise that people find themselves sliding into debt levels they cannot handle. I should mention that it is not only non-bank lenders that now use these low-doc loans. According to the Reserve Bank of Australia, the share of low-doc lending in the home mortgage market has grown from less than one per cent in 1996 to nine per cent in 2006. The Market Intelligence Strategy Centre predicts that the proportion of low-doc loans in the housing market will grow to 22 per cent by 2008. I find these statistics to be very worrying under the current regime.

That is why I strongly support the amendment moved by the member for Hunter which calls for uniform regulation of mortgage brokers. Obviously, this will not resolve all our concerns about house repossessions, but at least it will place the same regulatory obligations on non-bank lenders as those placed on banks and credit unions. The hope is that people will be better informed about the risks when they take out these low-doc loans. This is supported by various organisations which have examined the issues surrounding home repossessions. The Consumer Law Centre of the ACT report recommended:

National regulation of mortgage and finance brokers should be introduced as soon as possible. Prudential regulation of non-bank lenders should be a priority for the Commonwealth.

Mr David Tennant, Chairperson of the Australian Financial Counselling and Credit Reform Association, recently made the following statement during a keynote presentation in Perth:

In the context of the growing problems in the lo doc market, effective regulation of finance brokers is a matter of the most urgent priority.

Mr Tennant then went on to describe a nationally publicised case study of a client of the ACT Consumer Law Centre, Mr AJ Biega. Mr Tennant said:

AJ Beiga was eighteen years old when he inherited $180,000. He thought buying a house would be a sound investment for the inheritance and secure his future. AJ approached a broker who lined up a $355,000 home loan with a non-bank lender.

Remember that this is for an 18-year-old. Mr Tennant continued:

The monthly repayments were around $3000. AJ told the broker he was a self employed artist. In fact, he was receiving a Centrelink benefit and according to AJ, had been living on the street for much of his teenage years. Not surprisingly, when the inheritance ran out, AJ could not keep up payments.  The broker helpfully organised a refinance.

The federal government’s response to the tragic rising trend of home repossession is that, in a less regulated environment, people should be more conscious of those risks. The government cannot continue to abrogate its responsibility in this area. Therefore, I strongly support the amendment moved by the member for Hunter which calls for uniform regulation of mortgage brokers.

In concluding, I would like to highlight that it is absolutely vital that people facing financial pressure with their home loans or other credit seek advice immediately, before they get into any further serious financial trouble. With Christmas coming soon, some people are going to find themselves under additional financial stress. The ACT Consumer Law Centre provides legal assistance and advice to people on low to moderate incomes who are facing financial difficulties in relation to credit and some other areas. I would hope that people within the ACT take advantage of that and contact the ACT Consumer Law Centre and that people in any other part of the country contact a similar, appropriate organisation.

But I want to finish by repeating this call. It is all very well for all of us to expect that people should know what they are doing when they walk into a mortgage broker or a financial institution and seek to get a loan granted to them, but we cannot rely on the hope that they know what they are doing. We need some protection. In the case of the mortgage broking industry, as I have said and as I have quoted from some experts, we really need some regulation to make certain that they know what they are doing, that they act according to some rules and that the people who walk in their doors have the protection that I believe we get when we go into banks and credit unions. If it is good enough for them to have those regulations, I cannot understand why it is good enough for the mortgage broking industry not to be treated the same way. I would like to think that the government is in a position to seriously consider the amendments that the member for Hunter has moved.

See this speech in context