In late 2020 we covered the proposed changes to the consumer credit laws in great detail and as the Bill is now before the Senate, we revisit the issue to provide an update on the issue. As background, in assessing applications for credit by individuals and many small businesses, banks and other lenders must comply with the framework as set out in the National Consumer Credit Protection Act 2009. As a licensed credit provider, Jade Finance must adhere to this law when we receive applications for consumer credit. Within the scope of our loan portfolio, consumer credit is loans to individuals for cars, boats, motorbikes and caravans. Some small business loan applications are also included in the Act.
As recap, in September 2020, a range of changes to the consumer credit laws were proposed by the Federal Government. This was done at a time when the Government was considering a range of economic stimulus measures in response to the economic impacts of the coronavirus. The changes proposed are aimed at easing the flow of credit to small businesses and individuals by lessening the time and some complexity associated with the application assessment and approval process. But continuing the protections in place for vulnerable persons.
In proposing these changes, the Government saw the existing framework as being too complex, time-consuming and for some loan categories such as home loans, involving increased costs. Some of the stages of the application assessment and approval were also duplicated.
One of the key issues relates to the way that lenders are required to assess the current spending of the applicant. Especially what is known as ‘discretionary spending’. This is what a person might spend their money on after they have met their necessary and essential living expenses.
The original plan was to have these changes launched by 1 April 2021. So what’s happened, what’s happening and how might these changes affect your loan application?
Enacting Legislative Change
The changes to the Act as proposed, would move the burden of assessing and proving that the loan applicant could meet the obligations of the new loan from the bank or lender and to the person applying for the loan. In simple terms, the person applying for the loan would have the responsibility to prove they could cover the loan commitments.
In Federal Parliament, the process to change a law can be quite an involved and lengthy process. First the Bill gets presented to Parliament and in many instances, such as this with this one, a consultative procedure via a Senate Committee is undertaken. This entails calling for submissions from stakeholders and other interested parties.
The hearings and considerations by the Senate Committee have been completed and on 12 March the relevant Senate committee handed down the report on the Bill. The recommendation being that the Bill be passed with no considerable change.
The Australian Banking Association was one significant body that made a submission. They noted that current discretionary spending habits of applicants could be changed when taking on new loan commitments. They notes that while the changes would entail reduced time and paperwork, the lenders would still undertake close scrutiny of loan applications.
As the Labor and Greens members of the committee dissented, it will be interesting to see how the Bill goes when presented for a vote in the Senate. The Federal Government does not have sufficient seats in the Senate in its own right to hold the balance of power and recently had their IR Bill diluted when it was considered for vote by the Senate.
While there are many issues currently in the media, there will likely be coverage of how this particular piece of legislation is debated, with a vote due in the near future if the 1 April implementation is to be met.
Significance to Your Loan Application
So where does all this put you if you’re applying for a personal loan for a car, motorcycle, boat or caravan? If passed, could there be changes to how Jade Finance handles your application?
If you have an existing loan with Jade Finance, your current arrangements will not be impacted. Your Secured Loan will have been arranged with fixed elements and they will remain for the loan term as long as you meet your repayment commitments and other loan conditions.
If you currently have a car, bike, caravan or boat loan being assessed and processed by Jade Finance, any changes made to consumer laws and hence how we assess applications, will not impact current applications.
If you apply for a loan after the proposed changes are brought into law, at this stage after 1 April and if passed by both houses of parliament, you may see some changes to the way your loan application of processed. These may include reduced time and less effort on your part. Though Jade Finance always offers fast approvals and prompt and streamlined loan approvals within the framework we must adhere to.
In relation to the discretionary spending issue, the proposed changes may mean that lenders would focus more on the debt level of applicants rather than current/past spending behaviours. Reducing any other debts you may currently have, including credit cards, may improve your prospects of your application being approved.
By selecting Jade Finance to handle your loan, you will always have a consultant to handle the paperwork and assist you with every stage of the application while sourcing you the cheapest loan offer.
As this Bill proceeds through the final legislative stages, we will be staying across the progress and providing updated information in our articles when appropriate. In the meantime, our lender services continue ‘business as usual’. So if you’re interested in a loan at the cheapest interest rates, give us a call!
For a quote on a consumer loan for a car, boat, caravan or motorbike, contact Jade Finance Call 1300 000 008
DISCLAIMER: NO LIABILITY IS ACCEPTED IF ERRORS OR MISREPRESENTATIONS ARE FOUND IN THIS ARTICLE. THE ARTICLE IS PREPARED AND PRESENTED FOR GENERAL INFORMATIVE PURPOSES AND IS NOT INTENDED TO BE THE SOLE SOURCE OF INFORMATION FOR MAKING FINANCIAL DECISIONS. THOSE REQUIRING GUIDANCE AND ADVICE SHOULD CONSULT A FINANCIAL ADVISOR.