Demi Benton

Demi Benton

Proposed Changes to Responsible Lending Laws

In the wake of COVID-19, the Australian economy has all but collapsed. There are proposed changes aimed at providing economic stability and growth by easing consumer access to credit, suggested as the lifeblood of the Australian economy. Now more than ever, the unnecessary barriers to accessing credit must be removed so that consumers can continue to spend, and businesses can invest and create jobs. Following this announcement, there has been a considerable public debate, and some suggest the proposed changes could result in adverse consequences from granting loans to consumers who cannot repay them.

However, under the new controls, financiers are subject to stricter protocols, including an inability to finance consumers’ whose income comes from Centrelink and repayments exceed 10% thereof. Nonetheless, the intended reforms are projected to bring Australia’s economy and dream of homeownership back to life swiftly by reintroducing 5 billion dollars per month in credit alone to housing investors.

The changes to the National Consumer Credit Protection Act 2009 (Cth) are due to come into effect from March 2021 and will essentially streamline the application process by altering the evidentiary onus from the lender to the borrower. Previously responsible lending laws required financiers to make reasonable inquiries into the consumers’ financial situation, their objectives and any other reasonable steps to verify their finances under the suitability of the credit contract they were seeking. Banks were required to check bank statements thoroughly, income sources and transactional history of consumers, including Uber Eats receipts, to get a grasp of their financial viability and spending habits. 

However, as Justice Perram expressed in the recent case of ASIC v Westpac (2019) 139 ACSR 25, a customer’s current living expenses are not indicative of their likelihood to afford a loan because “I may eat Wagyu beef every day washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare”. Hence, it comes as no surprise that previous responsible lending laws were not viewed favourably. 

Consumers will avoid the 100-page long application process, and extensive background searches through this new streamlined process which will also make it easier to seek out better terms or lower interest rates encouraging credit providers to provide competitive rates. 

If there ever was a time that access to credit for small businesses and homeowners was necessary, a worldwide pandemic is probably top of that list. Only time will tell whether these reforms will meet these needs.

The team at Midwinters Lawyers are ready to assist lenders and borrowers with Lending requirements.

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