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‘Borrower beware’: New laws make it easier for Aussies to access credit

Anastasia Santoreneos
·3-min read
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Approved Mortgage Application

Australians will find it easier to access loans and other forms of credit under changes to the responsible lending laws, which were introduced back in 2009 after the global financial crisis.

Federal Treasurer Josh Frydenberg told Sunrise on Friday that credit and its flow to the community would be “absolutely critical” to Australia’s economic recovery.

“And right now we have a regulatory approach that's too complex, that is too costly, that is overly prescriptive, that’s a one-size fits all model,” Frydenberg said.

“So, what we’re seeking to do is to remove that duplication to streamline that process, and to enable the lending to take place without borrowers having to provide their Uber Eats slips and their Netflix subscriptions.”

The Government will unveil the exact changes on Friday, but effectively the changes will transfer due diligence responsibilities from the lender back to the borrower.

“We’re going to move that culture from the lender beware to a borrower’s responsibility,” Frydenberg said.

“Now, a lender will only want to lend money where it’s going to be profitable to do so, and the hope is that the client will pay that money back. So, they’re going to still need to verify the income and other details, but right now the pendulum has swung too far one way, and it’s not serving the interests of the consumers.”

The changes won’t mean borrowers will be able to lie on their applications, with the Treasurer saying APRA regulations will continue, but the overlay of regulations by the Australian Securities and Investments Commission (ASIC) will be loosened.

“The banks are so concerned about getting on the wrong side of these regulations that they’re not providing the level of credit that we need across the economy,” he said.

In announcing the changes, Frydenberg revealed that ASIC would play a larger role in monitoring payday lenders, who prey on “vulnerable consumers”.

According to the Guardian, payday lenders won’t be allowed to give loans to people who receive more than half their income from Centrelink if the repayments are more than 10 per cent of their income.

What are the responsible lending laws current in place?

The responsible lending laws were put in place by former Prime Minister Kevin Rudd in 2009 after the GFC, when Aussies were found to be lying about their ability to repay loans, and banks were buying it.

In the years since, it’s become increasingly tougher to access credit, with the Banking Royal Commission really being the nail in the coffin.

Post-2018, banks have been looking into your Uber Eats track record, any gambling or cash-out habits and even your Netflix or Spotify subscription.

Banks do this by checking all your income sources, like payslips and bank statements, and straight out asking borrowers about their spending habits.

Insolvency changes

The changes to responsible lending practices follow the Treasurer’s announcement that the Government would change insolvency laws to protect small businesses.

These changes would see businesses work with an insolvency practitioner to devise a plan to repay accumulating debts, rather than engaging an administrator.

"Many businesses who are doing it tough through the Covid crisis because of health restrictions - they have had to close their doors but the liabilities have kept building up," Frydbenberg said on Thursday.

"The focus is to give those business owners more control as they deal with these liabilities."

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