The corporate regulator has hit back at the treasurer, Josh Frydenberg, over suggestions that responsible lending laws might make banks nervous to lend to small businesses, describing the idea that the rules crimped the flow of credit to the sector as a “myth”.
The Australian Securities and Investments Commission commissioner, Sean Price, made the comments in a speech on Thursday to a conference of credit risk professionals on the Gold Coast.
A fortnight ago Frydenberg told the Australian Financial Review the government fully understood bank concerns about “the need for clarity about the indirect application of responsible lending laws to small business when the family home is used as security”.
“There’s a real grey area as to what is a small business loan and a personal loan,” he said.
Price did not name Frydenberg directly during his speech, but he said there were “a number of myths and exaggerated claims about the supposed effects of the responsible lending laws” that were “either not supported by the facts or data or, if they are real, they are the result of a fundamental misunderstanding and misapplication of the law”.
“The first is the suggestion that small business lending is negatively affected by the responsible lending obligations,” he said.
“There has been a lot of misinformation published recently in the media and in the current corporate reporting season about the effect of the responsible lending requirements on small business lending.”
He said responsible lending laws did not apply to borrowings made predominantly for a business purpose, even if the loan was secured over the family home.
“So if someone borrows $500,000 of which $300,000 is to be used to establish a small business, and the remainder for making home improvements, the loan is not subject to the responsible lending obligations,” he said.
He also said it was a myth that the responsible lending laws hurt economic growth.
“Indeed lending trend reports published by the [Australian Banking Association] show that banks are still lending. Approval rates remain between 85% and 90% for home lending and 90% and 95% for business lending,” he said.
“Instead, the main reason for slower credit growth has been a decline in the demand for credit.”
Price also dismissed criticism for its appeal against its loss of a lawsuit over responsible lending against Westpac – which had been accused of 250,000 cases of irresponsible lending – that has been dubbed the “wagyu and shiraz” case.
In September government backbenchers Jason Falinski and James Paterson criticised Asic officials over the decision in a torrid parliamentary committee hearing that followed heavy lobbying of politicians by the banks.
Asic decided to appeal the wagyu and shiraz decision “to clarify the application of the law”.
“And if the judgment is to be understood as standing for the proposition that a lender may do what it wants in the assessment process, as his honour found, then we consider that to be inconsistent with the legislative intention of the responsible lending regime,” Price said.
“We should not be criticised for accessing the courts to resolve a dispute, as all regulators do from time to time.”