What The Axing Of Responsible Lending Laws Means For You

You might have recently heard that ‘responsible lending laws’ are set to be scrapped early next year. Rest assured though that you’ll still be able to borrow responsibly.

Taylors Strategic Partner - Dylan Salotti, Managing Director of Divitis Finance - explains what responsible lending laws are, why it's changing and what it means for you going forward. 

Planned Changes

The planned scrapping of the responsible lending laws is the federal government’s 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 it’s all about 'giving a free-kick to the banks' and will put borrowers at risk.

But, here’s the good news.

Not only can your mortgage broker assist you in making the most of the upcoming changes, but they can help you determine your borrowing power so that you’re confident to repay any loan you take out.

Sounds like a win-win, right?

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?

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 you’ve applied for a loan recently, you’ll 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 won’t 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 APRA’s lending standards, which require sound credit assessment and approval criteria. So it’s not open-slather for banks.

Why Is It 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 Does It Mean 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 you’ll still want to make sure you’re not taking on debt that you can’t afford to pay back.

And that’s where we can make ourselves especially useful.

Not only will we be able to guide you through the updated process, but we’ll be able to help you work out your earnings and expenses so that you take on a loan that you’ll be able to confidently repay.

That way you’ll get the best of both worlds: responsible borrowing and easier access to credit.

Like To Learn More?

Like to learn more about the upcoming changes and how to determine your borrowing power so that you’re confident to repay any loan you take out?  Please contact your mortgage broker or Dylan Salotti on 0430 227 328