Responsible Lending axed, 4 things you need to know for now…

parliament house

The federal Government has revealed that it will overhaul credit by axing responsible lending obligations of the NCCP.  It is fair to say that a lot of us didn’t really see this coming? Please note that it hasn’t actually happened yet and is open for further discussion to implement changes by March 2021.  The full details are yet to be released.

Here is a quick snapshot…

What are responsible lending laws?

  1. Making reasonable inquiries about the consumer’s financial situation, and their requirements and objectives
  2. Taking reasonable steps to verify the consumer’s financial situation
  3. Making a preliminary assessment (if you are providing credit assistance) or final assessment (if you are the credit provider) about whether the credit contract is ‘not unsuitable’ for the consumer

Why are the laws being wound back?

The free flow of credit will be critical to getting the ‘post-pandemic’ economy back on its feet. Treasurer Josh Frydenberg has been clear in his commentary

“Credit is the lifeblood of the Australian economy, with billions of dollars in new credit extended to households and businesses in Australia each month.  Now more than ever, it is critical that unnecessary barriers to accessing credit are removed so that consumers can continue to spend and businesses can invest and create jobs. What started a decade ago as a principles-based framework to regulate the provision of consumer credit has now evolved into a regime that is overly prescriptive, complex and unnecessarily onerous on consumers. These changes will make it easier for the majority of Australians and small businesses to access credit, reduce red tape, improve competition and ensure that the strongest consumer protections are targeted at the most vulnerable Australians”

What could this mean for you and your clients

In our view, this is a ‘wait and see’ because we have a right to be a slightly sceptical about moves to make things easier for us (after years of throwing more and more at us).  But, in essence it ‘could’ mean:

  • Less onerous credit processes (eg, less forensic analysis of bank statements)
  • Faster loan approvals
  • Some of the responsibility for a loan will fall back to the borrower
  • More flexibility for lenders to approve clients who may have been declined in the past

Will this impact Best Interest Duty?

No, the Best Interest Duty obligations commence for us as normal in January 2021.