05.02.2019 at 02:54
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Australians React To Royal Commission Report

The commission says there should be no effect to consumers, yet they recommended 76 changes for the financial industry.

The Banking Royal Commission already affected buyers with its earlier lending crackdown, but economists say the new report will not trigger a further credit crunch.

The report contained no directive to further tighten lending practices. But among the recommendations was a call to lessen banks' reliance on the Household Expenditure Measure (HEM) benchmark, and instead inquire more into actual income and expenses.

Commissioner Kenneth Hayne QC spoke about this change.

"I consider that the steps — taken by banks to strengthen their home lending practices and to reduce their reliance on the HEM — are being taken with a view to improving compliance with the responsible lending provisions of the NCCP Act."

When the commission began back in March, it strongly criticised the big 4 banks — especially ANZ — for not verifying expenses of home loan applicants. However it also criticised Commonwealth Bank for having many home loans which showed expenses well below the HEM guidelines.

Shane Oliver, chief economist for AMP Capital, said the final report showed the commission was not aiming at further tightening.

"The royal commission has reinforced the lending standards APRA has already put through the system and that tightening started back in 2017 and gathered pace into the early part of last year.

"The anecdotes of it being harder to get a loan, that was happening around March, so the tightening and the negative impact on the property market because of credit tightening has already been evident and there aren't recommendations to push that further.

"The focus going forward will be making sure these regulations are maintained.

"The effect of the royal commission on property will last for years but not forever. You go through periods where lending standards become lax and then there's some sort of blow up.

"There will come a point down the track where it's concluded maybe the tighter lending has all gone too far, however I don't think we will quickly return to an investor-driven boom."

According to commissioner Hayne, the banks had already implemented increased scrutiny of loan applicants' expenses.

Terry Rawnsley, economist at SGS Economics, agreed that the commission report should not result in further "belt tightening".

"I think they've already tightened and over-tightened.

"We've seen in the last year that the housing market has softened, and that's been driven by some policy changes like APRA's crackdown on investor lending and state governments' stamp duty surcharges for foreign buyers."

The report contained 76 recommendations, which according to Mr Haynes are aimed at combatting a "culture of greed and misconduct" in the finance industry.

Because of this, many other people are still concerned that home loans will be harder to get, though apparently nobody is expecting loans to completely dry up.

Among the changes in the commission report is a recommendation that banks ease the pressure on farming loans, and only place farm loans in administration or receivership as a last resort, when all other avenues have been exhausted.

The report also recommends that only experienced agricultural bankers be involved with farm loans, and begin the mediation process earlier, when a loan is first classified as in distress.

Another proposal was that banks should stop charging default interest in cases where they do not have a realistic prospect of recovering the amount being charged.

The government will be setting up a national system to assist farmers who seek mediation on the best strategies to repay their loans.

The commission also advocated for an industry-funded compensation scheme to help customers of financial institutions that collapse.

Haynes blamed greed for the "widespread misconduct" in the industry. He said banks had gone to the edge of, and beyond, what is permitted because they profited and often got away with such actions.

Also, bank customers were sometimes charged repeatedly for a one-time service.

The commission also recommends changes to the insurance industry, to focus more on the consumer. For example, Mr Hayne said commissions on life insurance should be reduced to zero, and funeral insurance should be subject to consumer protection laws.

Another recommendation that many will see as a positive change is the banning of advice fees for superannuation accounts, and banning "hawking" of superannuation products which can result in customers being sold superannuation products which are not in their best interest.

Yet another proposal was for ASIC to cap commissions for sale of add-on insurance when automobiles are sold. They also recommended deferred sales models, so customers can have time to decide what kind of add-on products they really need.

Mr Hayne said it would be better to improve enforcement of existing laws, rather than the creation of new laws.

"Passing some new law to say, again, 'do not do that' would add an extra layer of legal complexity to an already complex regulatory regime. What would that gain?"

And ASIC and APRA were strongly criticised for failing to enforce "the bounds of permissible behaviour", and said misconduct too often went unpunished or the consequences were not as severe as the seriousness of transgressions warranted.

Both bodies promised to be tougher on violators.

One report recommendation that the federal government refused to adopt was a crackdown on mortgage brokers taking commissions. The government said taking up the recommendation would harm competition in the mortgage industry.

Malcolm Turnbull took exception to the commission's singling out of NAB CEO Andrew Thorburn, and Chairman Ken Henry.

"There’s always the cry heads must roll. Leaders obviously have to take responsibility, but I think the most important thing is to make sure that if people have committed offences or crimes, they should be charged, yes, but the banks have to change their culture."

In all, 75 of the 76 recommendations were accepted for consideration by the federal government, the mortgage broker commissions being the only point of contention.

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