2020 Federal Budget CEO Update - Changes to Credit Laws

by AFIA

25 September 2020

Today Hon Josh Frydenberg MP, the Treasurer, announced changes to the credit framework to make it easier for consumers and small businesses to access credit, reduce red tape, improve competition, and ensure that the strongest consumer protections are targeted at the most vulnerable Australians.

The Treasurer stated that what 'started a decade ago as a principles-based framework to regulate the provision of consumer credit has now evolved into a regime that is overly prescriptive, complex and unnecessarily onerous'.

According to the Treasurer’s media statement, the key elements of the reforms include:

• removing responsible lending obligations from the National Consumer Credit Protection Act 2009, with the exception of small amount credit contracts (SACCs) and consumer leases where heightened obligations will be introduced
• ensuring that authorised deposit-taking institutions (ADIs) will continue to comply with APRA’s lending standards requiring sound credit assessment and approval criteria
• adopting key elements of APRA’s ADI lending standards and applying them to non-ADIs
• protecting consumers from the predatory practices of debt management firms by requiring them to hold an Australian Credit Licence when they are paid to represent consumers in disputes with financial institutions
• allowing lenders to rely on the information provided by borrowers, replacing the current practice of ‘lender beware’ with a ‘borrower responsibility’ principle.
• removing the ambiguity regarding the application of consumer lending laws to small business lending.

Here’s links to the Treasurer’s media statement and a background note.

AFIA believes the announcement to streamline credit processes and remove ambiguity with consumer and small business lending make sense. These changes should aim to make it easier, faster and simpler to access right-sized and best-priced credit to support economic recovery and underpin financial wellbeing.

It will be important to work through the details of the changes so strong consumer protections are maintained and sensible changes are introduced that reinforce the principles of prudent lending, while removing complexity, embracing technology and reducing burdens on lenders and borrowers.

The Government will consult publicly with stakeholders before finalising any legislation required to implement the reforms. AFIA will work with our members and stakeholders through the consultation on the legislative changes.