As headlined in the Australian Financial Review this morning, Treasurer Josh Frydenberg will announce today that the government will in effect dump the responsible lending law that was imposed by the Rudd Labor government in 2009.
The simplification will remove the Australian Securities and Investments Commission from enforcing the responsible lending rules for banks and other mainstream lenders, while bolstering ASIC’s oversight of payday lenders for vulnerable borrowers.
The deregulation responds to concerns of banks and Reserve Bank of Australia governor Philip Lowe, that following the Hayne banking royal commission and ASIC’s pursuit of Westpac in the “shiraz and wagyu” lending case, banks became too conservative and squeezed the flow of credit.
Greater emphasis on self-responsibility means lenders will not be penalised if borrowers mislead on their loan applications, enabling banks to rely on income and expense information provided by borrowers and speeding up the credit approval process.
Mr Frydenberg said the most significant reforms to credit rules in a decade would increase the flow of credit to households and businesses, reduce red tape and strengthen protections for vulnerable consumers. They will take affect from March next year if Parliament approves changes
Higher-risk non-bank products, known as small amount credit contracts and consumer leases, will remain under ASIC’s purview and the rules for these products strengthened, such as caps on credit.
Dr Lowe said last month the “pendulum has probably swung a bit too far to blaming the bank if a loan goes bad”.
“We can’t have a world in which, if a borrower can’t repay the loan, it’s always the bank’s fault.
“On a portfolio basis, we want banks to make some loans that actually go bad, because if a bank never makes a loan that goes bad it means it’s not extending enough credit.”
Lenders will continue to be subject to standards for credit risk management and expectations of sound lending practices.
The government said since the National Consumer Credit Protection Act was introduced in 2009 a range of new consumer financial protections remained in place including product intervention powers for credit products, a design and distribution obligation for product issuers, a best interests duty for mortgage brokers, banning unsolicited offers of credit limit increases and the establishment of Australian Financial Complaints Authority.
The full article from today’s AFR can be found here.
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