Our guide to the responsible lending exemptions for small business

Exemptions from the responsible lending obligations for small business customers have now been put in place with new regulations. These are part of the Federal Government’s economic response to COVID-19.

The responsible lending obligations apply to regulated consumer credit. Lending to companies (other than strata companies) has always been exempt from the credit legislation, so these changes will not make any difference for incorporated businesses, but they will affect lending to individuals operating a small business as sole traders or with others.

When the purposes of a loan or lease include both consumer purposes (personal, domestic or household) and non-consumer purposes (such as for a business), generally the finance will still be regulated as a consumer loan if the consumer purposes are predominant. For example, a loan of $100,000 where $60,000 is for home renovations and $40,000 is for working capital for a business will be regulated, and therefore subject to the responsible lending obligations before the exemptions were made. The exemptions introduced relate to these kinds of mixed purpose loans or leases which include a business purpose component.

We have prepared a free 2 page guide summarising the changes which you can download here.

The key features are:

• for new credit or leases, or credit increases, there is an exemption from the requirement to assess whether the credit contract, credit increase or consumer lease is unsuitable, and from the requirement to make inquiries and verifications;
• the ban on providing credit assistance for an unsuitable credit contract, credit increase or consumer lease (or providing credit for these, in the case of a credit provider) will not apply;
• the exemption applies for 6 months from 3 April 2020;
• both credit providers and credit assistance providers are exempted;
• the borrower must have (or had in the last 12 months) existing credit or leases with the lender – these facilities do not need to be consumer (regulated) finance;
• for new loans or leases or credit increases, the finance must be partly for the purposes of a small business operated by the consumer (alone or with others) – finance that is wholly or predominantly for business will continue to be exempt from the credit legislation in any event; and
• a small business generally means a business that has either fewer than 100 employees or revenue of $5 million or less.

Patrick Dwyer and Kathleen Harris
Legal Directors