Simpler lending laws risk Australians drowning in debt - Mornings

Daniel Fowler
September 27, 2020

Australia's government will loosen responsible lending laws in a bid to boost the flow of credit and help the economy recover from its first recession in nearly 30 years.

Though credit is cheap now with interest rates at record lows, consumers have found it more hard to obtain the loans they seek, with many giving up due to tough lending laws. "Across time, lenders have become increasingly risk averse and overly conservative".

The treasurer said: "We're streamlining the provision of credit, quicker to access credit, while keeping the consumer protections in place".

Treasurer Josh Frydenberg announced on Friday that the government would transfer due diligence obligations for loans from lenders to borrowers, effectively dumping responsible lending laws introduced in 2009 and injecting an "adrenaline shot" into the economy.

"Before the Royal Commission banks had very poor reputations and after the Royal Commission it got worse because it showed that they've been lending quite irresponsibly", CLSA senior banking analyst Brian Johnson said. "As a outcome, borrowers, irrespective of their financial circumstances, have faced an ever more intrusive, hard and drawn-out approval process".

Banks and investors cheered the news with National Australia Bank and Westpac Banking shares rising over 6%, while Commonwealth Bank of Australia was up more than 3%.

Bank executives welcomed the changes.

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'With the right balance, these changes will simplify lending rules while maintaining strong protections for borrowers and improving protections for those vulnerable consumers using debt management firms, small amount credit providers and consumer leases'.

Banks and non-banks will be policed by prudential lending standards overseen by APRA, eliminating the old ASIC lending rules.

Under the changes, lenders will no longer be penalized if borrowers provide misleading information on their loan applications, speeding up the credit approval process as Australia endures its first recession in 29 years.

"But our current regulatory framework, with respect to lending, is not fit for the goal".

"Our service has helped thousands of Australians drowning in debt and we continue to see legacy debt that predates the Hayne Royal Commission".

In the biggest change, the onus of responsibility for determining the suitability of a loan will be shifted to the borrower instead of the bank, to address the "excessive risk aversion which has built up and restricted the flow of credit", the government said.

The new arrangements will be created to ensure credit assessment is more attuned to the borrower's needs and the credit product.

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