The federal government’s latest key initiative to boost economic recovery from the Coronavirus recession is to scrap ‘responsible lending laws’. This will see banks subject to less onerous credit rules, freeing up access, reducing the cost and time it takes for home buyers and small businesses to access credit.
Responsible lending laws put the responsibility on the lender to decide whether or not a loan is suitable for the applicant and whether they are able to repay the loan without getting into financial difficulties.
In a shift from ‘lender beware’ back towards traditional ‘borrower beware’, Treasurer Josh Fryberg is due to announce the government will drop the responsible lending law that was imposed by the Labor government in 2009 following the American subprime loan crisis.
“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,” said Mr Frydenberg.
Once the law is scrapped, the reduction in red-tape measures will see banks and non-bank lenders policed under less prescriptive lending standards, with lenders able to rely on the information provided by borrowers. If therefore an applicant overlooks their expenses or provides misleading information in their loan application, it is the borrower not the lender who will be held responsible.
The proposed changes will make it easier for the majority of small businesses to access credit, however lenders will still be required to comply with The Australian Prudential Regulation Authority (APRA)’s lending standards. This means loan applicants will still be required to comply with credit assessments and approval criteria.
While the easier access to credit will be welcome news for some, it must be remembered that it is vitally important to ensure you’re not taking on a debt which you can’t afford to pay back.
Call in at your local TaxAssist Accountants for expert advice and guidance for you and your business to help you through these difficult times.
Last updated: 4th November 2020
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