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Will responsible lending reforms help small businesses?

The government’s plan to remove responsible lending obligations could help small businesses access much-needed finance, but not everyone is convinced.

Business Jotham Lian 28 September 2020
— 2 minute read

Treasurer Josh Frydenberg has announced a proposed reform of credit regulations in a bid to reduce red tape and speed up loan approvals to inject credit into a post-pandemic economy.

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The reforms, which will kick in from 1 March 2021 if legislation is passed, has been welcomed by the banks, believing that it will help ensure the flow of credit to consumers and small businesses.

“Australian banks understand their role in supporting customers and rebuilding the economy. Ensuring the flow of credit to families and businesses, with the right customer protections, is paramount,” said Australian Banking Association chief executive Anna Bligh.

Australian Small Business and Family Enterprise Ombudsman Kate Carnell said the proposal would likely remove “onerous barriers” for small businesses looking to access funding.

“Since the banking royal commission, small businesses have faced an uphill battle to secure a loan, due to unrealistic serviceability requirements from the banks,” Ms Carnell said.

“We are aware of small businesses that have been asked for all sorts of documentation by the banks — even for loans that have been 50 per cent guaranteed by the federal government — including director guarantees, which really means the family home. It’s no wonder small-business owners are reluctant to borrow.

“The pendulum has swung too far and now is the time to correct this imbalance which is harmful to small businesses.”

However, key consumer groups believe removing responsible lending laws will push more businesses and individuals into a worse position.

“We got rid of the idea of ‘buyer beware’ in consumer law decades ago. To make it the principle that guides lending in the middle of a recession has disaster written all over it,” said CHOICE chief executive Alan Kirkland.

“Piling more debt onto people who can’t afford it has never solved an economic crisis.”

Likewise, Consumer Action Law Centre chief executive Gerard Brody noted that the flow of credit has not been an issue despite COVID-19.

“The Commonwealth Bank recently said that the flow of credit is above pre-COVID levels and that lending is growing at a strong pace,” Mr Brody said.

“And none of the big banks opposed the responsible lending laws at the recent House of Economics committee hearings.

“Leaving people with more debt they can afford is no way out of an economic crisis. Pushing too much credit that people can’t afford to repay creates hardship, stress, anxiety for individuals and families.”

Shadow treasurer Jim Chalmers said Labor would take a close look at the government’s proposal and make sure “people don’t get in over their heads” or are caught in debt traps.

“We’ll have a look at what the government’s proposing. It wouldn’t kick in until March, so we’ve got time to consider it and consult widely,” Mr Chalmers said.

“If it makes sense, we’ll support it, but if we think that it tips the balance far in one direction, then we’ll make our views known about that.”

Will responsible lending reforms help small businesses?
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Jotham Lian

Jotham Lian

Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.

Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.

You can email Jotham at: This email address is being protected from spambots. You need JavaScript enabled to view it. 

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