Mortgage application approved

Australians will have an easier time accessing loans and other forms of credit thanks to changes to responsible lending laws, which were introduced in 2009 after the global financial crisis.

Federal Treasurer Josh Frydenberg said Sunrise Friday, this credit and its flow to the community would be “absolutely critical” to Australia’s economic recovery.

“And right now we have a regulatory approach that is too complex, too expensive, too prescriptive, it’s a one-size-fits-all model,” Frydenberg said.

“So what we’re looking to do is remove that duplication to streamline that process and allow the loan to take place without borrowers having to provide their Uber Eats and Netflix subscriptions. “

The government will unveil the exact changes on Friday, but in reality the changes will shift due diligence responsibilities from the lender to the borrower.

“We are going to shift this culture of caution from the lender to the responsibility of the borrower,” Frydenberg said.

“Now a lender will only want to lend money where it is profitable to do so, and the hope is that the customer will pay that money back. So they’re still going to need to verify income and other details, but at the moment the pendulum has swung too much one way, and it’s not in the best interests of consumers.

The changes will not mean borrowers will be able to lie on their demands, with the treasurer saying APRA regulations will continue, but the overlay of Australian Securities and Investments Commission (ASIC) regulations will be relaxed.

“Banks are so worried about getting on the wrong side of these regulations that they are not providing the level of credit we need across the economy,” he said.

In announcing the changes, Frydenberg revealed that ASIC will play a bigger role in monitoring payday lenders, who prey on “vulnerable consumers.”

According to Guardian, payday lenders will not be allowed to make loans to people who receive more than half of their income from Centrelink if the repayments represent more than 10% of their income.

What are the responsible lending laws currently in place?

Responsible lending laws were put in place by former Prime Minister Kevin Rudd in 2009 after the GFC, when Australians were found to be lying about their ability to repay their loans and banks were buying them.

In the years that followed, it became increasingly difficult to access credit, with the Royal Banking Commission really being the nail in the coffin.

After 2018, banks looked at your Uber Eats review, all gambling or your withdrawal habits and even your Netflix or Spotify subscription.

Banks do this by checking all of your sources of income, like payslips and bank statements, and directly asking borrowers about their spending habits.

Insolvency changes

The changes to responsible lending practices follow the treasurer’s announcement that the government would change insolvency laws to protect small businesses.

These changes would see companies working with an insolvency practitioner to design a plan to repay accumulated debt, rather than hiring an administrator.

“Many companies that are going through the Covid crisis due to health restrictions – they have had to close their doors but the liabilities have kept piling up,” Frydbenberg said Thursday.

“The goal is to give these business owners more control when facing these responsibilities.”

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