Following the banks’ concerns, two weeks ago Treasurer Josh Frydenberg said he would instruct ASIC to tell the banks to exempt small business operators from the responsible-lending regime, which is meant to protect consumers.
On Thursday, Mr Hughes hit out at “misinformation” on the topic in the media, and said responsible-lending laws had never applied to business loans since their introduction in 2009.
“There are a number of myths and exaggerated claims about the supposed effects of the responsible-lending laws that need to be addressed,” Mr Hughes said.
“These claimed effects are 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.”
Mr Hughes said the purpose of a loan to an individual – not the type of security provided – was what determined if it was covered by responsible-lending laws.
If more than half the value of a loan was to launch a business, for example, the loan was not covered by responsible-lending laws.
However, Mr Hughes did acknowledge there had been confusion about whether the Australian Financial Complaints Authority, which deals with disputes, would apply responsible-lending rules in its assessments.
The laws were introduced by the Labor government in 2009 to avoid predatory lending, and they state that a loan must be “not unsuitable” for a customer.
The royal commission did not recommend changes to the regime. But an ongoing court battle between ASIC and Westpac, and the regulator’s move to update its guidance in this area, has also added to uncertainty.
Future Fund chairman Peter Costello, who also chairs Nine, the publisher of The Sydney Morning Herald and The Age, this week said he thought the laws were “having the effect of choking credit a bit.”
But Mr Hughes said that while ASIC had heard of some loan officers escalating their approvals to managers, the data did not support claims of delays in credit processing times.
Mr Hughes also said ASIC did not accept that responsible-lending was slowing economic growth, arguing credit growth had dropped due to weaker demand.
Clancy Yeates is a business reporter.