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Responsible lending laws to be axed. What does this actually mean for you?

Responsible lending lawsYou may have heard of the federal government’s plans to scrap responsible lending laws from 1 March 2021. It’s one of the key initiatives designed to boost economic recovery from the COVID-19 recession by simplifying the regulatory landscape and freeing up access to credit for home buyers and small businesses.

What does it actually mean though? And how will it affect you as a borrower?

Let’s break it all down in a little more detail, and how it might affect you come 1 March 2021.

 

What are responsible lending laws?

Responsible lending laws were introduced as part of the National Consumer Credit Protection Act 2009, in response to the Global Financial Crisis.

The essence of these laws 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.

If you’ve applied for a loan recently, you’ll know first hand 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? You may have noticed that these non-essential expenses have drawn close scrutiny from the lender in recent years.

Once the laws are removed, lenders will be able to rely on information provided by borrowers.

That means if a would-be borrower overlooks expenses or provides misleading information in their loan application, the lender won’t be the one facing the heat.

The responsibility is put back onto the borrower (perhaps where it should have always been).

This does not mean it’s open-slater for lenders, as lenders are still required to comply with APRA’s lending standards, which requires sound credit assessment and approval criteria.

 

Why it’s changing

Put simply: the federal government is pulling out all stops to kickstart the national economy in 2021.

“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,” 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.

“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,” adds Mr Frydenberg.

 

What it means for you going forward

As mentioned above, the proposed changes could reduce red tape and potentially make it easier for the majority of Australians to access credit. That being said, lenders will still be assessing applications thoroughly, just perhaps not asking questions like, “What did you eat for breakfast?”

We’re here to ensure you take on a loan that allows you to achieve your objectives, but also one that you can confidently repay. If you want some help to work out your borrowing capacity, you can get started here.

 

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