Proposal to ease Responsible lending restrictions

Proposal to ease Responsible lending restrictions

The federal government is planning on easing Australia’s lending restrictions to help the economy recover from the impact of COVID-19.  

Restrictions on loans and other forms of credit had previously been tightened after both the Banking Royal Commission in 2019 and the National Consumer Credit Protection Act was introduced in 2009.

If the government’s proposal to ease restrictions is passed by parliament, it will be easier for both individuals and businesses to get loans or other forms of credit from most lenders in the Australian market. 

What changes are proposed?

There are two major changes proposed   

1) A relaxing of Australia’s responsible lending provisions.

2) The Australian Securities and Investments Commission (ASIC, Australia’s financial regulator) playing a larger role in monitoring the activities of payday lenders.

We’ll look at both of these changes in turn.

Changes to responsible lending provisions

Under Australia’s current lending restrictions, lenders are legally required to make sure that a loan is ‘not unsuitable’ for an applicant based on their current circumstances. They are obliged to do this during the loan or credit application process by:

  1. Making inquiries about the applicant’s financial situation, requirements and goals.
  2. Verifying the applicant’s financial situation.

Treasurer Josh Frydenberg gas proposed that these responsible lending provisions be removed. Instead, of the lender is responsible for ensuring that a loan or credit is ‘not unsuitable’, it will be the borrower’s responsibility to determine that. 

However, that said, it will still be in the lender’s best interest to only approve applicants who can afford their repayments. If they don’t, they run the risk of bad debts (unless an applicant takes out lenders’ mortgage insurance on a home loan or provides collateral security for another type of loan. Collateral security decreases lender risk because the borrow provides the title to the lender as security. If the borrower defaults on repayments, the lender can repossess and sell the asset to recover the amount owing).

Payday lenders

ASIC will play a larger role in monitoring the activities of payday lenders. The clients of these lenders tend to be more vulnerable to credit consumers. Payday lenders will have stricter requirements for approving funds for applicants who receive Centrelink payments.

What could be the impact of the proposed changes?

Besides making loans or credit easier to obtain, the relaxing of Australia’s lending restrictions should make it faster to get approval for most lenders in the market (excluding payday lenders). 

How we can help

At ARG Finance, our experienced team of finance and mortgage brokers can help you to source the right loan for your needs, including:

We’ll take the time to understand your individual situation so we can provide you with the best advice. We arrange loans from our panel of over 30 lenders across Australia, saving you time and hassle. 

Contact us today for an obligation-free chat to find out how we can help you!

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal, nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

 

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