Australia scraps responsible lending laws

Josh Frydenberg

Australian treasurer Frydenberg has watered down rules for the nation's banks, making lenders subject to less onerous oversight.

The Aussie government is keen to boost lending after Australia's first recession for nearly 30 years. 

According to the Australian Financial Review, a slashing of red tape will remove the Australian Securities and Investments Commission (ASIC) from enforcing responsible lending laws.

ASIC will be given greater oversight of payday lenders and vulnerable borrowers instead.

Banks and non-banks will be policed by prudential lending standards overseen by APRA, eliminating the old ASIC lending rules.

Frydenberg called the changes "the most significant reforms to Australia's credit framework in a decade".

He confirmed the decision on Friday, ending former PM Kevin Rudd's strict laws which were introduced in the aftermath of the GFC.

The treasurer said:  “We’re streamlining the provision of credit, quicker to access credit, while keeping the consumer protections in place.

“This is going to make it much better for consumers, whether they are getting their first home loan, or increasing their mortgage, or extending their overdraft, or receiving a credit card, this is about personal consumer loan activity and making it easier.”

Frydenberg also said the changes would boost small businesses.

“Our changes will make it very clear that the prudential framework that’s in place is not to apply to small business lending. We want small business to access lending,” he said.

The rule changes are likely to have a significant effect on New Zealand's banks, with the "big four", ANZ, BNZ, ASB and Westpac, Australian-owned. 

NZ advisers have blamed Australian responsible lending laws for an overly-strict approach from the banks in recent years, with servicing criteria making it difficult for borrowers.

The responsible lending rules have been criticised in Australia for squeezing the flow of credit.

Bank stocks reacted well to the news. In early trading, Westpac shares jumped by 6% in Australia.