Government abolishes responsible lending requirements to help jumpstart the economy
The Morrison government intends to cut the red tape currently facing banks and lenders on the issuance mortgage loans and other credit products, allowing clients to access loans without getting bogged down in rigorous application procedures.
Introduced by the Labor government in the wake of the global financial crisis, the responsible lending framework is now seen as a restriction on credit flows to households and businesses at a time when economic recovery depends on it.
Reducing restrictions would shift the burden of responsibility from lenders to borrowers, allowing banks to take credit applicants at their word when disclosing income and expense information, unless there are good reasons not to do so.
Treasurer Josh Frydenberg said cutting red tape will remove barriers to accessing credit and help the economy emerge from the COVID-19 recession.
“Maintaining the free flow of credit in the economy is essential to Australia’s economic recovery plan,” he said.
“By simplifying the loan application process for borrowers, it will reduce barriers to switching between credit suppliers, encouraging consumers to seek a better deal.
Currently, banks and other lenders are supervised by the Australian Prudential Regulation Authority, but they are also subject to strict lending rules by the Australian Securities and Investments Commission.
The changes will reduce ASIC’s role in enforcing responsible lending obligations, freeing the business regulator to focus on payday lenders instead.
Under the new controls, payday lenders will no longer be able to lend money if half of a borrower’s income comes from Centrelink and repayments exceed 10% of their income. This increases to 20% if less than half of a person’s income comes from Centrelink.
ASIC will also strengthen its controls on consumer leases and other high-risk non-bank products, for example by introducing interest limits.
For banks and non-bank lenders, easing restrictions should reverse the risk averse climate many believed is suffocating lending activity. For more information on credit trends, be sure to visit or mortgage statistics page.
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