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Responsible Lending Laws Scrapped: What this Means for You


To mitigate the impact of the COVID19 pandemic on the country’s financial climate, the Australian government plans to relax stringent credit laws and regulations, making it easier for Australians to take out a new mortgage or to refinance their existing home loan.

These changes would mean households and small businesses will be able to access credit easily. Treasurer Josh Frydenberg believes the easing of lending laws and making credit more easily available will help stimulate the economy. These new changes to credit laws will also balance the banks’ and applicants’ burden on only borrowing what they can comfortably afford to repay. These changes are scheduled to take effect next April, so it will be interesting to see between now and then how lenders react to the changes. 

Why Do We Have Responsible Lending Laws?


Responsible lending laws initially came into force in Australia in 2009 after the GFC. 

In line with the National Consumer Credit Protection Act 2009,  these laws were also outlined to provide guidelines for lenders when looking into loan applications, ensuring they only give out loans to suitable borrowers. These rules also placed the burden of responsibility on the lender to ensure the credit product is suitable, by verifying the applicant’s requirements, objectives, and their financial situation.

The government has now decided to amend these regulations and ‘cut the red tape’ so credit flows smoothly, boosting the struggling economy.

What Is Changing and Why?


Australia is on the brink of a financial crisis, entering a recession for the first time in 29 years. Treasurer Josh Frydenburg and the Australian government believe that current credit laws are outdated and should be changed to help support as many Australians impacted by the country’s crisis as possible. 

As Australia continues to recover from the COVID-19 pandemic, it is more important than ever that there are no unnecessary barriers to the flow of credit to households and small businesses,” the Treasurer has said.

One way the government believes it can help stimulate the economy is to make it easier for people to secure loans by minimising red tape for households and small businesses. 

He points out, “Maintaining the free flow of credit through the economy is critical to Australia’s economic recovery plan.”

The treasurer has proposed that the responsibility for consumer lending be transferred from Australian Securities and Investments Commission (ASIC) to the Australian Prudential Regulation Authority (APRA) and that consumer loans be governed more simply under APRA’s lending standards. 

The Reserve Bank governor, Philip Lowe, also believes it’s time for these laws to be changed, saying that banks are restricting the supply of credit to small businesses. He also notes the way they’ve translated these principles into reality needs to be re-examined to meet the demands of the current climate.

What These Changes Mean For You


The easing up of Responsible Lending Laws is set to dramatically impact many Australians’ lives, especially those focused on buying a home or purchasing an investment property. Following warnings from the Reserve Bank of Australia that banks were becoming too wary of lending, Treasurer Josh Frydenberg plans to ease banks’ liability over bad loans, shifting the responsibility to the borrower.

Consumer protection remains a top priority, with the Australian government pledging stronger protection for vulnerable borrowers at risk from extortionist loan conditions from payday lenders. Debt collectors will also be required to hold an Australian credit licence. 

Simplifying the loan application process for borrowers will make home loans more accessible, further reducing approval times and lengthy inquiry processes. 

Consumers will also find it easier to switch between credit providers if they’re on the hunt for better deals. 

If anything, the changes to Responsible Lending Laws can help stimulate the flow of money across households and small business owners, as it is easier to secure a home loan deal. 

However, consumers should continue to practice caution when entering loan agreements and get a credit advisor like Shore Financial on their side to help them understand the terms and what it could mean for them.

What the Response Has Been


The response to the move has been largely mixed. Many consumer groups disapprove of the scrapping of responsible lending laws, arguing that amidst the current financial situation, people need to be wary of going into more debt.

Karen Cox of the Financial Rights Legal Centre also points out that people need more income and not debt as unsustainable debt can hurt consumers and is a short-term fix to a failing economy.

However, with the red tape being cut, home buyers feel better supported to buy assets, which promotes more business with infrastructure and investment. All of these steps are clearly focused on helping stimulate the economy again. 

All big four banks have welcomed the decision to scrap Responsible Lending Laws, as they are keen to strip ASIC from its regulator status.

Groups like the Customer Owned Banking Association (COBA) have also welcomed the news saying that this will simplify unnecessarily complicated regulations and that lending responsibly has always been the way with customers being a top priority.  

For households and small businesses, this will shake up and speed up access to loans, making more funds available.

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Finding the Best Home Loan Options with Shore Financial


Amidst relaxed lending laws and consumers given easier access to more loan options, it will be easier for families to access refinancing options, take out a mortgage, or buy a new home which isn’t generally considered bad debt, it can be necessary and considered when planning for your future

Still, it’s essential to be prudent and act cautiously when entering new home loan agreements. You need to ensure you can repay these loans and that the agreements you enter do not put you into any financial peril.

If at any point, you feel unsure and want to feel safer when buying a property in the current climate, Shore Financial is a trusted expert in home loan advice.

Our team provides a step-by-step guide to securing a home loan, so you can make the right mortgage decisions and be better placed to access home loan options that are tailored to your needs.

Get in touch with Shore Financial today.

Get in touch with Shore Financial today and maximise your opportunity through property!




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