Responsible Lending Laws

I am curious how these so-called responsible lending laws can be called responsible.

If someone has an existing loan for say $1m and they are paying say $7000 p/m and they want to sign up for a refinance for $1m and the repayments will be say $5000 p/m. How can allowing this person to refinance be considered irresponsible? Surely not allowing people with existing debt to change to a better deal is irresponsible.

Surely if the loan amount is not increasing the fact that they are making the higher current repayments should nullify any involvement of govt responsible lending laws. It should be then up to lenders to determine if they want to make the loan free from these restrictions as the person already has a loan.

This would massively benefit consumers, as people who no longer qualify (and maybe locked into far higher rates) would have a greater opportunity to refinance stopping banks screwing existing customers so badly.

 

During the Royal Commission, I remember one of the Major Banks was sued by a couple who lied on their application and invested in numerous mining town IPs that fell in value.

Responsible lending laws are there to protect everyone (bank and consumer).

The government also then tweak it up or down depending on how much credit flow they want in the economy. So don't read any logic into it. Pre-COVID it was all about hitting the banks. When COVID hit, it was asked that banks relax they standards to support the economy. No chance the COVID loan deferrals and continued lending would be "responsible" lending in the traditional sense.

TB

 

The problem isn't really the laws themselves, it's how the laws are being interpreted and enforced. ASIC has interpreted the laws to mean that the obligation is on the banks to ensure that people can afford their mortgages in the most extreme circumstances. For example, if a borrower lies on their loan application, it's the banks fault because they didn't do sufficient checks.

You might say that there's laws for responsible lending, but a complete absense of 'responsible borrowing'.

ASIC has demonstrated that they're extremely conservative in their approach and willing to litigate even reasonable breaches. Hence lenders have taken a very conservative approach to their policies. Whenever they make a decision about anything in the lending process, they take the conservative approach. Even when it contradicts other policies.

There's numerous consiquences to this. Many people are trapped in loans that they can't refinance out of and lenders take advantage of this. People can't qualify to borrow money even though owning their home would cost them less than the rent they pay.

 

It is new lending which they may not be suitabl.e

 

Think of a case where you borrow money from legbreakers at 10% a day interest. Would it be responsible for a bank to refinance you if you dont meet the criteria?

 

These loans don't fall under the responsible lending laws.

Also if the lenders don't hold a credit license, then they're acting illegally.

 

Good point. FYI there has been dialogue and regulatory reports into this by ASIC, APRA of late. I suspect within a few years this will be allowed pending loan terms remaining the same between providers.

 

This would at least keep lenders on there toes with rates. Extending the term would be better but something is better than nothing.

 

One would think it would need to be refinanced like for like, home loan for homeloan, personal for personal etc Although being able to convert personal loan to home loan and save a heap of interest would make sense.
Regarding the loan shark refinance one could also argue its rather responsible to help save someone's knee caps. Failure to allow this to be refinanced may cost the govt lots of money (via medicare)

 

Yes, if the loan term is the same.

Based on the OP, a 2k per month reduction is likely to be due to extending the loan term and the reduced repayments are not necessarily in the borrower's long term interest.

 

You can thank all the pen pushers and that grub Hayne for the BS Royal commission

 

Just ask anyone who was with RAMS/RHG if they agree with this.

 

So according responsible lending its ok to have a credit card @ 20% and pay min repayments paying it off in decades paying many many times the original borrowing. Want to chuck a few years onto your home loan @ 2% no that's not responsible.

 

It is based on the point at which the loan was applied for.

 

To be fair there has been some 'improvements' to how credit cards are assessed and how minimum repayments are managed. However credit cards and other personal finance practices definitely needs a bit more scrutiny IMO.

 

Yes, I still have one of those grubby RHG BS loans

 

All I can say is bring back low doc/no doc loans, I loved these products. They worked well for me

 

I'm not saying I agree with it but I also don't think people should be encouraged to blindly refinance to a new 30 year term without considering how they will repay their home loan prior to retirement, which seemed to be standard practice for many when I started my career.

Every situation is different but increasing the loan term with a plan for making additional repayments and a detailed exit strategy should be considered responsible.