It will soon be easier for Australians to take out mortgages and refinance their home loans as small businesses will be able to access more money as part of the federal government’s plans to change credit laws to mitigate the effects of the COVID-19 pandemic.
- Government Says Current Credit Laws Outdated, Particularly During COVID-19 Crisis
- The changes will ease the burden on banks of making sure people don’t take out loans they can’t afford
- Politics is controversial since the global financial crisis
But the changes will also remove some of the burden on banks to make sure people don’t take on loans they can’t afford to repay.
The federal government has said current credit laws are outdated, especially as the economy has been plunged into recession due to the pandemic.
He proposes new laws to reduce verification procedures, which means borrowers will not need to pass so much information to banks and, therefore, shorten the time it takes to get loans.
Borrowers would also be more required to provide accurate information to lenders under the new laws, which will come into effect in March if passed by Parliament, and replace the current practice of “pay attention to lenders” with a principle of “accountability.” of the borrower ”.
Treasurer Josh Frydenberg said the changes would cut red tape significantly.
“As Australia continues to recover from the COVID-19 pandemic, it is more important than ever that there are no unnecessary obstacles to the flow of credit to households and small businesses,” a- he declared.
“Maintaining the free flow of credit in the economy is essential to Australia’s economic recovery plan.”
The coronavirus crisis has seen hundreds of thousands of cash-strapped Australians postpone their mortgages, with 1.4 million households currently in mortgage stress.
As a result, the housing sector has called for a relaxation of guidelines governing bank lending, arguing that this would help the economy recover much faster.
“Consumer protection will remain in place”
Reserve Bank governor Philip Lowe also weighed in on the debate, telling a parliamentary committee last month that the legislation needed to be reviewed again.
“The pendulum has probably gone a little too far to blame the bank if a loan goes badly because the bank didn’t understand the customer. If it had done due diligence – that’s the state of mind of some – the bank would never have made the loan, ”he said.
“So some banks have had this mindset, ‘Well, we can’t make loans that go wrong.'”
The subject has been a controversial policy area since the 2008 global financial crisis.
Among the range of factors contributing to the global financial crisis was the willingness of banks and other lenders to make increasing volumes of risky loans for a variety of reasons.
But the government said strong consumer protections would be maintained under the changes in the law, and credit providers would still have to comply with their existing licensing obligations to act efficiently, honestly and fairly.
“The key point is that consumer protection will remain in place,” said Mr Frydenberg.
“But our current regulatory framework, as far as loans are concerned, is not suited to its objectives.
“It got too prescriptive, and responsible credit became restrictive credit.”
Consumers also protected from debt collectors
The government will also change its credit regulations, allowing Australians involved in disputes with debt collectors to appear before the Australian Financial Complaints Authority, an independent dispute resolution body.
Debt collectors who are looking for money will also be required to hold an Australian credit license.
The changes will take place from next April, and Deputy Treasurer Michael Sukkar has said they will protect vulnerable Australians.
“These reforms strike the right balance between protecting consumers while maintaining a viable industry to supply these products, and build on the successful implementation of ASIC’s intervention powers on products that protect consumers from harm. predatory lending behaviors, ”he said.