In the lead-up to bringing down the annual Federal Budget, Treasurer Josh Frydenberg started a robust conversation amongst a number of sectors with plans to overhaul the consumer credit laws. The changes flagged would affect home mortgages, personal loans for goods such as cars, boats, bikes and caravans amongst others. The changes will also impact some small business loans. In general terms, the Treasurer has flagged changes to simplify the access to credit in order to stimulate spending and hence boost the economy in the post-COVID recovery.
The Treasurer sees credit as a critical component to getting the economy firing. Most individuals will need to source a loan to purchase big ticket items such as cars and boats. But the current consumer credit laws are considered, by some, to be making that process more difficult and time-consuming. Certain processes, especially duplication across regulators, is seen as creating barriers to the access to credit. With easier access to credit, consumers will buy and business will be better placed to invest and so the positive economic cycle rolls on.
Improving the overall flow of credit from the lending sector through to consumers is the main focus of the proposed changes. There has been a lot of discussion in the media around these proposed changes by many different groups so we’re simplifying the proposed simplifying of credit laws for your convenience.
Proposed Credit Law Changes
For a start, these changes are proposed only at this stage. The proposal forms part of the 2002/21 Federal Budget which after being brought down by the Treasurer in the first week of October, must then be passed through both parliamentary houses. As the Morrison Government does not hold the balance of power in the Senate, this may involve negotiating with cross-benchers. It may also result in changes to the changes.
Second key point is that if the changes are all approved, the Treasurer has said he intends to have them in place by 1 April 2021.
To grasp the changes you need to know what the current situation is and therefore, where and why changes are seen to be needed. For example, Jade Finance is a credit licensee, as are banks, finance companies and other finance brokers. As we detailed in another article, we are bound to operate under Responsible Lending Guidelines as determined by ASIC when working with our consumer finance customers. We have strict rules and regulations that we, and others in the lending space, must adhere to.
In addition to the ASIC regulations, the banks, which are a major source of consumer finance, must also adhere to APRA regulations. APRA is the Australian Prudential Regulatory Authority and they control issues in the financial sector.
There is a duplication of some issues with this approach and removing the double-ups is seen as a way to eliminate some of the obstacles to access to credit.
The current way that the lending sector is set-up, the onus is very much placed on the lender. It is their responsibility to ensure that any loan or even and offer being made for a loan, is suitable for that borrower. In meeting these responsibilities, it is seen as the banks in particular taking too long in approving loans and hence providing access to credit. There have been comments that the banks question each expense and outgoing detailed by borrowers in applications. This situation is particularly prevalent in the home mortgage area.
The changes propose the responsibility be shifted with the greater onus on the borrower to ensure they do have the capacity to meet the loan requirements rather than the onus being greater on the lender. To facilitate this shift, the lenders would be permitted to rely on details as provided by the borrower and the borrower responsible for providing correct details in loan applications.
With the application process simplified, credit would be faster to access.
Of course, credit licensees would still need to meet strict regulations and consumers would still have consumer safeguards in place.
How the Changes May Impact You
- If you currently have a consumer loan, there will be no change to your current loan.
- The changes won’t be implemented until April 2021.
- For those currently applying for a loan, your application and the process to have it considered and approved will remain the same.
- If you apply for a consumer after the changes are implemented, the process may be more simplified and streamlined.
Timeframe for Change
As we flagged above, these are proposed changes only at this time and need to be passed in the 2020/21 Budget legislation in order to come into law. The banks and other lenders then need to implement changes to their own internal systems to integrate the changes.
The Treasurer has said April 2021 is the date for change, so we will await and watch how the process plays out.
Despite some criticism in delays in accessing credit, Jade Finance provides a streamlined service and can offer quick quotes, fast approvals and prompt settlement.
For further information on changes to consumer credit laws or to discuss a loan call Jade Finance call 1300 000 003
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