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'Responsible' lending laws to be axed

'Responsible' lending laws to be axed

'Responsible' lending laws to be axed
Sep 24, 2020 1 min, 28 secs

Responsible lending laws that fuelled a bitter court fight between the corporate regulator and Westpac will be scrapped for banks, which will be subject to less onerous credit rules to encourage the flow of loans and boost the economic recovery from the COVID-19 recession.

In a red-tape reduction, banks and many non-bank lenders will be policed under less prescriptive prudential lending standards currently overseen by the Australian Prudential Regulation Authority, while eliminating the stricter ASIC lending rules.

The deregulation responds to concerns of banks and Reserve Bank of Australia governor Philip Lowe, that following the Hayne banking royal commission and ASIC's pursuit of Westpac in the "shiraz and wagyu" lending case, banks became too conservative and squeezed the flow of credit.

“As Australia continues to recover from the COVID-19 pandemic, it is more important than ever that there are no unnecessary barriers to the flow of credit to households and small businesses," he said.

Higher-risk non-bank products, known as small amount credit contracts and consumer leases, will remain under ASIC's purview and the rules for these products strengthened, such as caps on credit.

ANZ and Commonwealth Bank of Australia chief executives warned this month that responsible lending laws and the challenges of dealing with two regulators and an ombudsman charged with overseeing the provision of credit are adding to the costs of doing business.

APRA's prudential lending standards will become the main line of defence for authorised deposit-taking institutions, governing more than 90 per cent of credit extended to non-business borrowers.

New rules will aim to protect welfare recipients by restricting payday loans (known as Small Amount Credit Contracts [SACC]) and consumer leases for people who receive 50 per cent or more of their net income from Centrelink..

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