You might have recently heard that âresponsible lending lawsâ are set to be scrapped early next year. Rest assured though that you’ll still be able to borrow responsibly. Let us explain how.
The planned scrapping of the responsible lending laws is the federal governmentâs latest key initiative to boost economic recovery from the COVID-19 recession.
Now, the federal government (and the banks) say it will simplify the regulatory landscape and free up access to credit for home buyers and small businesses.
Consumer rights advocates, on the other hand, argue itâs all about âgiving a free-kick to the banksâ and will put borrowers at risk.
But, hereâs the good news.
Not only can we assist you in making the most of the upcoming changes, but we can help you determine your borrowing power so that youâre confident to repay any loan you take out.
Sounds like a win-win, right?
Letâs break it all down in a little more detail, and how it might affect you come 1 March 2021.
What are responsible lending laws?
Basically, they put the onus on the lender to determine whether or not a loan is suitable for the applicant, and that the borrower can repay the loan without going into substantial financial hardship.
They were introduced in the wake of the Global Financial Crisis as part of the National Consumer Credit Protection Act 2009.
If youâve applied for a loan recently, youâll know firsthand that the bank scrutinises your ability to repay the loan very, very closely.
Ordered take-away a little too much? Had a punt on the latest sports match? Too many streaming subscriptions like Netflix? Chances are these non-essential expenses would draw some very close scrutiny from the lender.
Once the laws are scrapped, however, lenders will be able to rely on the information provided by borrowers.
That means if a would-be borrower overlooks expenses or provides misleading information in their loan application, the lender wonât be the one facing the heat.
Instead, the responsibility is flipped back onto the borrower.
That said, lenders will still be required to comply with APRAâs lending standards, which require sound credit assessment and approval criteria. So itâs not open-slather for banks.
Why itâs changing
Put simply: the federal government is pulling out all stops to kickstart the national economy in 2021.
âWhat 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,â says Treasurer Josh Frydenberg.
By scrapping the laws, the federal government hopes to reduce the cost and time it will take you to access credit.
âNow 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,â adds Mr Frydenberg.
What it means for you going forward
As mentioned above, the proposed changes will reduce red tape and make it easier for the majority of Australians and small businesses to access credit.
But youâll still want to make sure youâre not taking on debt that you canât afford to pay back.
And thatâs where we can make ourselves especially useful.
Not only will we be able to guide you through the updated process, but weâll be able to help you work out your earnings and expenses so that you take on a loan that youâll be able to confidently repay.
That way youâll get the best of both worlds: responsible borrowing and easier access to credit.
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