Australia overhauls bankruptcy laws to help firms over COVID-19

Andrew Cummings
September 26, 2020

Following warnings from the Reserve Bank of Australia that banks were becoming too wary of lending, Treasurer Josh Frydenberg plans to ease the liability on banks over bad loans, shifting responsibility to the borrower.

Under the reforms, consumers will be protected from "predatory practices" of debt management firms and will allow lenders to rely on information provided by the borrowers.

Aiding sentiment, Fitch Ratings said the A$1.3 billion (S$1.26 billion) record fine agreed by Westpac to settle a lawsuit by financial crime agency Austrac is manageable for the Australia's second-largest lender.

However, unlike the Chapter 11 process, Australia's new restructuring process will not be court-supervised, and she warned that the reforms, whose details have not been released, needed to ensure adequate oversight to avoid abuses.

"This is a significant government initiative that will reduce red tape for consumers seeking a loan and importantly speed up the process for customers to obtain approval for a loan", Westpac CEO Peter King said in a statement.

With the deregulation, banks would still be accountable to the regulator and would continue to conduct their own risk assessments of prospective borrowers.

ANZ Bank CEO Shayne Elliott said the move "will speed up the flow of credit during these hard economic times while still providing the necessary protections for Australians when accessing credit".

"With billions of dollars extended to borrowers each month, credit underpins the Australian dream of home ownership while allowing businesses to invest, grow and create jobs", he said.

Writing for The Australian, Frydenberg said that lending laws had become so absurd that borrowers were often forced to justify their discretionary spending even on such minor expenditures as a Netflix account.

Banks can now take information from borrowers at face value.

In effect, the government has heeded what became known as the "wagyu and shiraz" verdict when the Australian Securities and Investments Commission previous year lost a high-profile case claiming Westpac Banking Corp. breached responsible lending laws by relying on spending benchmarks in approving mortgages.

"Piling more debt onto people who can't afford it has never solved an economic crisis". "The government's solution is to take on more debt with fewer protections", Ms Fox said.

"Watering down credit protections will leave individuals and families at severe risk of being pushed into credit arrangements that will hurt in the long term".

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