chapter  8
30 Pages

Apples and oranges? Responsible mortgage lending in the UK and Australia


In ‘From Truth in Lending to Responsible Lending’, Iain Ramsay described the fundamental paradigm shift in consumer credit regulation that became apparent in the first decade of the new millennium.1 The ‘truth in lending’ or ‘information’ paradigm is firmly rooted in neoclassical economic thinking. It posits that consumers will make rational, welfare-maximising borrowing decisions if provided with adequate information at appropriate times. While acknowledging that some intervention in the market is necessary to redress the information asymmetries that can lead to market failures, it expresses a fundamentally libertarian free-market philosophy. But the findings of behavioural economics research have exposed a whole range of cognitive biases that interfere with consumers’ ability to efficiently process and act upon information, destroying confidence in the information paradigm of consumer law in general and consumer credit regulation in particular.2 The ‘responsible lending’ paradigm, in contrast, is premised on the notion that consumers are not always capable of making appropriate borrowing choices and that the state is therefore justified in stepping in to limit that freedom of choice. It is indubitably a creature of paternalism.3