You may have heard in the last few weeks, a number of news stories reporting that the Australian Government are planning to scrap responsible lending laws. On the surface, this idea sounds fraught with danger, but in reality, it may not be all bad news. In fact, let’s take a look at how you and I can use the new laws to our advantage.

Not long after the Global Financial Crisis the National Consumer Credit Protection Act of 2009 was introduced. The key concept being that the banks / credit licensees must not enter a credit contract with a consumer; suggest a credit contract to a consumer; or assist a consumer to apply for a credit contract if the contract is unsuitable for the consumer. Given the dire financial situation at the time, this legislation was completely logical.

However, banks / credit licensees were left to decide how best to meet these responsible lending obligations - meaning the burden was on the banks. If they were to lend money to a consumer and the consumer gets into trouble and can’t afford to pay it back, the bank may be in trouble. Many banks were wary of this, so rather than having ‘responsible lending’ we got ‘restrictive lending’. Suddenly, people who had never had issues getting credit before, were ignored by the banks.

If recent comments by Treasurer Josh Frydenberg are to be believed, the Act is set to be rescinded, effectively transferring due diligence responsibilities from the lender back to the borrower.

“We’re going to move that culture from the lender beware to a borrower’s responsibility.”

Therefore, it is likely consumers will be able to access credit more easily, when the changes come into effect in March 2021. How this will happen is still unclear and will likely vary from bank to bank.

Despite the changes, consumers will still need to:

Demonstrate the ability to service a loan by earning regular income that is likely to be on-going into the future. Evidence of this income will need to be provided.
Show that they have been paying their current debts in full and on time each month (Note: any late payments can now appear or your Comprehensive Credit Report which most banks use to determine their loans).

Having a plan set up 3-6 months before you are looking to borrow is a great way to make yourself an attractive customer for as many lenders as possible. So, it you are looking to borrow in the near future, let’s get to work on a plan so the banks show you some love now or in March 2021.

Michael