The Australian Government has announced responsible lending reforms which aim to reduce the time and cost associated with accessing credit for both consumers and businesses. These reforms have been proposed as part of the Government’s economic recovery plan out of COVID-19.
Proposed to take effect from 1 March 2021, the reforms seek to simplify the credit application process, making it easier for consumers and small businesses to access credit.
The reforms propose to overhaul the National Consumer Credit Protection Act 2009 (Cth) (NCCPA), introduced in response to the 2008 Global Financial Crisis. The Government has described the regime as having evolved into “overly prescriptive, complex and unnecessarily onerous on consumers”.
As it stands, the NCCPA imposes the significant burden on lenders to assess whether a credit contract is unsuitable for a consumer by making reasonable inquiries into the consumer’s requirements and financial situation. The reforms seek to remove these obligations and impose greater responsibility onto the consumer.
Key elements of the reforms include:
- Removal of responsible lending obligations from the NCCPA and the removal of ASIC as an enforcement body for responsible lending obligations;
- Application of Australian Prudential Regulation Authority’s (APRA) lending standards for authorised deposit-taking institutions (ADIs) and adoption of key elements of APRA’s ADI lending standards and application of APRA’s standards to non-ADIs administered by ASIC;
- Lenders can rely upon information provided by borrowers, replacing the current practice of ‘lender beware’ with a ‘borrower responsibility’ principle; and
- Protection for consumers against predatory practices of debt management firms by requiring firms to hold an Australian Credit Licence in practices where they are paid to represent consumers in disputes with financial institutions.
Whilst the reforms will encourage lenders to approve credit applications by removing existing red tape and adopting less stringent regulations, the reforms also strengthen consumer protection through reducing the barriers to change credit providers and introducing much-needed regulation in respect of debt management firms.
The proposed reforms demonstrate a shift towards a ‘borrower responsibility’ principle, allowing lenders to assess borrowers upon information they provide, reducing the liability of lenders and shifting the onus to the borrower to provide accurate information. The Government considers this will assist in addressing the risk aversion some lenders currently exhibit and will have the desired result of re-opening the flow of credit. It is unknown how this principle will affect the “diligent and prudent” banker obligations under the AFCA’s Banking Code of Practice.
To view the Australian Government’s complete fact sheet outlining the proposed changes, please click here.