Possible Changes to Lending Laws

The federal government is currently weighing up proposed changes to responsible lending laws, that could see a relaxation in credit terms, as part of the recovery from the financial devastation of COVID19.

If the amendments are passed, loan approvals for investors should become more streamlined; making access to credit more effortless than it has been in the past; particularly after the tightening up post-GFC (Global Financial Crisis), and further down the track, the Royal Commission into Banking.

The National Consumer Credit Protection Act 2009 was put into place to mitigate some of the lack of previous safeguards that left significant exposure.  In September 2020, in the midst of the pandemic Federal Treasurer Josh Frydenberg announced the government was looking at overhauling lending rules to free up credit and stimulate the economy.

The proposal involves the removal of the responsible lending obligations (RLOs) from the Credit Protection Act (with some exemptions); with the aim being to reduce red tape and increase access to credit, as well as increase competition across financial institutions.

It is anticipated that two of the big winners if these changes go through parliament, are first home buyers and self-employed borrowers, who have found the amount of detail, assumptions made about discretionary spending, and time taken to process applications to be a hurdle.

The legislation is lengthy, but essentially it will always be more flexibility for lenders to adapt to the individual circumstances of each borrower, and not have to comply with the former ‘one-size-fits-all’ approach.

Currently, lenders are required to adopt a similar approach to credit assessment for most consumers and credit products, irrespective of their circumstances; facing prescriptive obligations with close to 100 pages of guidance advising how they should meet their obligations under RLOs.

Following the changes, the obligations on the lender will be proportionate with the risk; and there will be a more common-sense approach taken by the lender at assessment stage.

Tim Lawless, Head of Research at CoreLogic Asia Pacific, provides the following commentary:

“Reforms to the Credit Act still need to be debated in the political environment; chances are they could be watered down. But if they do get voted through exactly as the Treasurer suggested before the Budget last year, it doesn’t necessarily mean it’s becoming easier to get credit. It just means that process becomes more streamlined.”

However, at this stage this is opposition from the ALP and several consumer groups to the new proposals, so it is certainly not a ‘given’ that they will be passed; and indeed, there may be increased safeguards inserted into the legislation before the opposition will approve.  We will keep you updated.