The Federal Government's responsible lending reforms, announced today and to apply from 1 April 2021, will be a major shake-up of Australia's credit landscape.
There will be a consultation period on these proposed changes to the National Consumer Credit Protection Regulations, and we urge all lenders to engage in this process.
The reason for the reform include:
- the responsible lending obligations risk slowing economic recovery by restricting ability to credit,
- lenders have put in place detailed and lengthy credit approval process to meet the legal requirements, without them necessarily improving a lenders ability to understand if the loan is suitable and obtaining credit has become more burdensome for borrowers and lead to delays and increased cost.
- there is a double-up for ADIs, having to comply with APRA's standards including expectations of sound lending practices, as well as the responsible lending obligations.
In summary, the proposed reforms are:
The proposed reforms should simplify the credit assessment process particularly by reducing the amount of information borrowers need to provide and lenders need to collect, verify and assess, and reduce barriers to switching between credit providers. However, much remains to be seen as to the detail of the changes and we await with interest the proposed legislation. It will also obviously need to be passed – and any proposed legislation may not emerge unscathed from the Senate. However, reforms to streamline the credit process and reduce costs are welcome developments.