New Lending Code Brings CommonSense Reforms

Highlights:

• Balanced Approach: The new Responsible Lending Code offers a flexible yet responsible framework for lenders, moving away from the previous one-size-fits-all process.
• Consumer Protections Enhanced: The reforms improve dispute resolution and allow councils to offer low-risk financial products for energy efficiency, enhancing consumer protection and access to credit.
• Industry Approval: The Financial Services Federation supports the code for its balanced approach, providing clarity and flexibility for lenders while maintaining essential consumer safeguards.

The new Responsible Lending Code, part of the Government’s Credit Contracts and Consumer Finance Act (CCCFA) reforms, has been welcomed by lenders for its balanced approach.

Key Changes

The government aims to improve access to home loans and other credit while enhancing consumer protections. Under the new code, lenders must act responsibly to avoid causing hardship but are no longer bound by a rigid, one-size-fits-all process. The reforms also include:

• Improved dispute resolution to better protect consumers.
• Exempting councils from the CCCFA to allow them to offer low-risk financial products for energy efficiency improvements.
• Eliminating duplicate reporting requirements.

Industry Response

The Financial Services Federation (FSF) expressed satisfaction with the code, appreciating the balance it strikes between consumer protection and access to credit. FSF Executive Director Lyn McMorran praised Commerce and Consumer Affairs Minister Andrew Bayly for the timely release of the new code, which will be effective from July 31. This 28-day gazetting period offers lenders clarity on the level of discretion allowed in affordability assessments.

Previous Challenges

The 2021 affordability regulations under the CCCFA were criticized for being overly prescriptive, significantly increasing loan processing times. These stringent checks made it challenging for providers to offer small loans, pushing vulnerable individuals toward high-interest lenders. The new code addresses these issues by allowing lenders to design more flexible, purpose-fit assessment procedures while maintaining the principle of responsible lending.

Looking Ahead

Phase two of the CCCFA changes will review liability settings, disclosure obligations, and high-cost credit provisions to ensure adequate regulation of lending practices. The new code aims to protect consumers without burdening lenders with excessive requirements, representing a return to commonsense in financial regulation.

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