Responsible lending exemption extended



The exemption from responsible lending for business loans has been extended.

The regulation is available here.

The exemption applies to loans and principal increases provided to small businesses which are:

  • genuinely for the purposes of a small business operated by the consumer (whether alone or with others); and
  • those purposes are not merely minor or incidental in relation to the loan or principal increase.

Normally responsible lending applies if 50% or more of the loan is for personal, domestic, household, or residential real estate investment purposes.

An example of how the exemption works is that a loan which is 80% to refinance a home loan and 20% for business purposes, which would normally be subject to responsible lending, will not be. Although responsible lending does not apply, the loan will still be regulated by the National Credit Code (NCC), NCC documentation must be used, and the usual credit licensing laws apply.

The background to the exemption is that in April 2020 the NCCP was amended by regulation to temporarily exempt certain loans from responsible lending obligations under the Act where particular conditions were met (the small business exemption). This temporary exemption has now been extended until the earlier of October 3, 2024 and when (and if) the government’s new regime to amend the responsible lending regime (delayed in the senate) commences.

An entity is a small business for the purposes of the exemption if:

  1. It has fewer than 100 employees at that time; or [not and]
  2. Either:
    • Its revenue for the previous financial year is AU$5,000,000 or less; or
    • If there was no time in the previous financial year when the business was carried on—its revenue for the current year is AU$5,000,000 or less.

The exemption applies to lenders and brokers. The explanatory memorandum explains that regulation ensured that the responsible lending obligations were not reimposed on a portion of credit activity that has a partial small business purpose.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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