Access to credit is expected to be made easier under law changes to be announced by Treasurer Josh Frydenberg on Friday.
At the same time, the Morrison government will strengthen consumer protections for vulnerable people accessing so-called “payday loans”.
About $13 billion of credit is extended each month to help Australian families buy their own home, while about $5 billion flows to housing investors.
The Credit Act was put in place more than a decade ago to ensure lenders do not provide unsuitable loans to consumers, but its “one size fits all” approach is no longer considered fit for purpose and it is unduly restricting lending.
Since the laws came into effect a raft of other changes have been made in consumer credit protection, including empowering the Australian Securities and Investments Commission to intervene and setting up the Australian Financial Complaints Authority.
But problems persist such as existing mortgage holders facing delays in refinancing even if they have a strong credit record, and sophisticated borrowers being subject to the same stringent obligations as a high-risk borrower applying for a payday loan.
Under the new rules, lenders will be able to rely on the information provided by borrowers, unless there are reasonable grounds to suspect it is unreliable.
Borrowers will be made more accountable for providing accurate information to inform lending decisions, replacing the current practice of “lender beware” with a “borrower responsibility” principle.
The changes will also improve consumer protections when taking out “payday loans” and consumer leases.
There will be a cap on the total payments that can be made under a consumer lease and new “protected earnings amounts” for payday loans and consumer leases made to people on Centrelink payments.
As well, the government will introduce a “fit and proper person” test for debt management companies representing consumers in disputes with financial services firms.
“The Morrison government is implementing the most significant reforms to Australia’s credit framework in a decade to increase the flow of credit to households and businesses, reduce red tape and strengthen protections for vulnerable consumers,” Mr Frydenberg said.
He said the free flow of credit was critical to Australia’s economic recovery plan.