Government to scrap responsible lending requirements to help revive economy

The Morrison government intends to scrap the red tape banks and lenders currently face when issuing home loans and other credit products, allowing customers to access loans without getting bogged down in rigorous application procedures.

Introduced by the Labor government following the global financial crisis, the responsible lending framework is now seen as restricting the flow of credit to households and businesses at a time when economic recovery depends on it.

Winding back the restrictions would shift the burden of responsibility from lenders to borrowers, allowing banks to take credit applicants at their word when disclosing income and spending information, unless there is strong reason not to. 

Treasurer Josh Frydenberg said the red tape reduction would eliminate the barriers to accessing credit and assist the economy in its road out of the COVID-19 recession.

“Maintaining the free flow of credit through the economy is critical to Australia’s economic recovery plan,” he said.

“By simplifying the loan application process for borrowers it will reduce barriers to switching between credit providers, encouraging consumers to seek out a better deal.”

Currently, banks and other lenders are overseen by the Australian Prudential Regulation Authority, but they are also subject to strict lending rules by the Australian Securities and Investments Commission. 

The changes will reduce ASIC’s role in enforcing responsible lending obligations, freeing up the corporate regulator to focus its attention on payday lenders instead.

Under the new controls, payday lenders will no longer be able to lend money if half of a borrower’s income comes from Centrelink and the repayments exceed 10% of their income. This increases to 20% if less than half a person’s income is from Centrelink.

ASIC will also tighten its controls on consumer leases and other high-risk non-banking products, such as by introducing caps on interest.

As for banks and non-bank lenders, the easing of restrictions is expected to undo the climate of risk aversion many believed was stifling lending activity. For more information on lending trends, be sure to visit or home loans statistics page.

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Last updated 22 June 2024 Important disclosures and comparison rate warning*
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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

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