Stronger protection for home buyers in new consumer credit laws

Australia’s banks have recognised that wholesale property repossessions in a recession are bad business.

That is implicit in their acceptance of new safeguards, that the Federal government has just announced.

These will enable home buyers, with mortgages of up to $500,000, to seek protection against foreclosure, if they lose their jobs and cannot meet their repayments. This means that thousands of Australian families, will have a better chance of keeping their homes,  while they get their finances back into order.

The present threshold, for such protection, is $312,400.

“This means that if home buyers find themselves in financial hardship, they will be able to request help,” Senator Nick Sherry said.

Borrowers seeking this protection would have to contact their bank first, to get help.  If the bank  refuses to help,  the borrowers would be able to appeal to the Federal government’s Financial Ombudsman service.

Senator Sherry, who is Minister for Superanniation and Corporate Law announced the new threshold, in a statement he issued yesterday.

It is part of a package of sweeping changes to Australia’s credit laws, that Senator Sherry announced yesterday.

The announcement follows six months of intense talks with Australia’s banks, State governments and consumer representatives.

The biggest influence on the changes, though, has clearly been the  bitter experiences which followed years of reckless lending in the  United States.  These have included the collapse of more than 50 US banks since the onset of the global credit crisis last September.

Senator Sherry said the new laws, which are expected to come into force in November, would give Australia simple, standard, national regulation of consumer credit for the first time.

“It will save business money and will protect Australian consumers,” Senator Sherry said.

All consumer credit providers will have to be licenced under the new regime.

Senator Sherry said, too, that the new laws would provide new, easy access to low cost dispute resolution procedures.

Investment loans would also be covered  by consumer protection for the first time.

The new system will also include what Senator Sherry called “responsible lending laws.”

He said these would make it illegal for a lender to extend credit that is unsuitable for a particular borrower.

“Breaches oif responsible lending obligations will attract sanctions ranging from fines through to civil and criminal penalties,” Senator Sherry said.

www.treasury.gov.au/consumercredit for details.