Small business loans exemption from responsible lending obligations to be extended until 2026
16 August 2024
16 August 2024
Chapter 3 of the National Consumer Credit Protection Act 2009 (Cth) (Act) sets out the responsible lending obligations which credit licensees must comply with. These obligations require lenders to, in summary, make reasonable inquiries about a consumer's financial situation (and their requirements and objectives), take reasonable steps to verify a consumer's financial situation, and make an assessment about whether the credit contract is "not unsuitable" for the consumer, before entering into credit arrangements with them.
The responsible lending obligations (and consumer credit laws more broadly) do not generally apply to business and commercial lending. However, these laws apply to mixed-purpose loans (for example, where a small business applies for a single loan which has both personal and commercial purposes) if the 'predominant' purpose of the loan is personal, and not business related.2
In April 2020, the small business exemption was introduced to facilitate the flow of credit to small businesses in response to the COVID-19 pandemic. The exemption was initially only put in place for a period of six months but has since been extended three times and is currently due to expire on 3 October 2024.
The small business exemption applies to loans and increases to loans provided to consumers which are:
For the purpose of the exemption, a business is a 'small business' if:3
Extending the small business exemption will provide an additional two years of data to help inform a future decision by the government on whether the exemption should be:
The government is inviting interested parties to provide feedback on the proposed extension of the small business exemption. The consultation period ends on 19 August 2024.
Authors: Mansi Gupta, Associate.
1. Regulation 28RB(7)(b) of the National Consumer Credit Protection Regulations 2010.
2. Section 5 of the National Credit Code.
3. Regulation 28RB(7) of the National Consumer Credit Protection Regulations 2010.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.
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