Responsible Lending or Restricted Lending?
- Posted By Craig Wieckhorst
Simplifying access to Credit for Consumers and SME business is on of the Morrison Government’s economic recovery plan.
Whilst we welcome the idea of being able to borrow more with less “Process”
It’s probably worth shedding some light on what Responsible Lending is.
Responsible Lending is a concept which looks at the responsibilities of the two parties of a Loan, The Lender – which is the Bank and The Borrower – which is the Customer.
Under the Australian credit license laws, it’s not just the borrower’s responsibility to ensure that they can afford to repay the loan, the lender also has a responsibility to ensure that the loan is “NOT UNSUITABLE” for the borrowers.
Customers who originally took on an Interest Only loan for 5 years, reached its term and when it changed to Principal & Interest, they defaulted, rather than selling the assets, the customers took a class action against the banks for providing them with a loan that they couldn’t afford. – Which strung along the Royal Commission into Banking.
Our Treasurer Josh, described the Responsible Lending as Restricted Lending but when you look at it, Responsible lending is just a response by the bank from the embarrassment to the Royal Commission.
By “Streamlining the process” and making it easier to borrow, Banks can now lend you money that you might not be able to pay back.
And when you default YOU CANNOT blame the banks for “irresponsible lending”
In short this does not stop the bank from bankrupting you and taking your house, it prevents you from BLAMING the banks for lending you the money that you can’t pay back. It’s really a win for the banks.
The best way to look at it is to always buy what you can afford, rather than buying what you can borrow.
-Roshan Amarasingha