Under a planned government crackdown mortgage brokers and lenders will be forced to obtain a credit licence, and may face jail or hefty fines if they authorise mortgage loans to borrowers that they can't afford.
The Australian has reported that these changes are part of a credit industry overhaul that will establish a single national law to regulate mortgages, credit cards, pay day lending and consumer credit products.
Consumer groups have welcomed the proposed laws which sparked immediate concerns from the banks, which stated that they would increase costs, slow down loan applications and make lenders overly cautious in issuing credit.
Nick Sherry Corporate Law Minister said earlier this week that tough measures on responsible lending were necessary to protect consumers and ensure that they were not burdened with debts that they could not afford. Senator Sherry further stated that the Labor Government intended to crack down on irresponsible lending and that they intend to weed out dodgy providers of credit finance and dodgy advisers from the industry.
Due to commence from November 1st the laws include fines of up to $220,000 for individuals and $1.1 million for corporations and five-year jail terms for brokers and lenders who offer products unsuitable for a consumers requirements and financial status. The laws will allow borrowers to sue for damages as a result of being put into loans they cannot repay, and seek court injunctions to stop interest accruing.
The Australian Securities and Investments Commission has been chosen to implement the scheme, they will received $66 million dollars over four years and employ an extra 200 full time staff to cope with the workload.
Credit Providers will be obligated to disclose fees and commissions upfront and will need to sign up to a dispute resolution scheme such as the Financial Ombudsman Service, to make it simpler for borrowers to seek relief from lenders.
Opposition corporate law spokesman Chris Pearce had called for a Senate inquiry and stated that he hoped it did not tie up credit when credit was sorely needed at this difficult time.
Ian Gilbert Australian Banking's Association retail regulatory policy director was delighted with the Governments move to reduce red tape by replacing the patchwork of state and territory laws with a single national scheme, but felt that the laws were to harsh given that local banks had been lending responsibly for decades and would slow down applications and restrict the flow of credit.
Mr. Gilbert felt however that if someone made an error which led to criminal sanctions was totally out of proportion.