You must have heard in the news that ‘responsible lending laws’ are set to be scrapped early next year. Rest assured though; you’ll still be able to borrow responsibly. Let us explain how:

The federal government’s plan to scrap the responsible lending laws is their latest key initiative to boost economic recovery from the COVID-19 recession.

Both the federal government and the banks say it will simplify the regulatory landscape and make credit more accessible for home buyers and small businesses.

Consumer rights advocates, on the other hand, argue that all it does is put borrowers at risk while the banks benefit from increased borrowing.

But the good news is, we’re here to help

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

So let’s break it down and talk about how the new laws may affect you and how we can help.

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 whether or not 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.

Therefore, the responsibility is now placed 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.

Deciding whether or not you can afford a certain size of loan is actually a more difficult decision to make than you might think. So, getting assistance from a broker could be the solution you’re looking for.

Why it’s 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 removing the laws, the federal government hopes to reduce the cost and time it will take for 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 it means for you going forward

As mentioned, 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. Get in contact with us so that we can guide you through the process. Even though responsible lending laws may be gone, you can still borrow responsibly with the help of Loanscope.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Emmanuel Guignard (MBA)
Director & Principal Mortgage Broker
With over 15 years’ experience in the finance industry and a recently completed MBA in Financial Planning, Emmanuel leads the broking team at Loanscope. His experience includes working with a wide range of property investors, from first time buyers to investors with large property portfolios. This includes handling complex applications involving trusts, company structures and self-managed super funds. He also operates as a qualified mentor to other mortgage brokers via the FBBA mentor program.
Emmanuel Guignard