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The government’s proposal to wind back responsible lending obligations has now been released for public consultation.
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Details of responsible lending reforms emerge
05 November 2020
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The Treasury has now released draft legislation and regulations that set out the government’s announcement to reform credit regulations, effectively removing responsible lending obligations for banks.
Under the proposal, the current practice of “lender beware” will be replaced with a “borrower responsibility” principle, with the government hoping that the reduction of extensive information and checks required by lenders will help speed up loan approvals and inject credit into the economy.
Responsible lending obligations will continue to apply for small amount credit contracts and equivalent loans by banks as well as consumer leases.
While small business lending was not meant to be captured under the Credit Act, the government contends that risk aversion of lenders has meant that some small businesses have struggled to access credit, particularly where it is difficult to separate their business from their household.
The government believes its credit reform will remove the ambiguity regarding the application of consumer lending laws to small business lending, helping to speed up approvals and access to credit.
The measures are set to commence on 1 March 2021, subject to the passing of legislation.
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Industry reaction to the proposal has been mixed, with consumer groups concerned that removing responsible lending laws will push more businesses and individuals to take on bigger debt.
Accountants have also been pre-emptively cautioned against picking up the slack from lenders who transfer due diligence onto borrowers.
CPA Australia believes such reforms could lead to a return of a practice where banks request accountants to sign off on a client’s ability to repay a loan as part of the application process, potentially shifting liability to the accountant when the client defaults on a loan.
However, the Australian Small Business and Family Enterprise Ombudsman believes the reforms will ultimately help remove “onerous barriers” for small businesses looking to access funding.
The Treasury’s public consultation on the exposure draft and explanatory material will close on 20 November.
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