What do Australian credit laws do for you?

Australia has a variety of rules, regulations and laws in place to help protect citizens and their personal finances when they’re borrowing money. There are protections in place for credit card, car loan and personal loan customers, as well as for borrowers taking out a mortgage.

Who manages Australia’s credit laws?

The two main organisations that set and manage credit laws in Australia are the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).

ASIC is Australia’s financial markets conduct regulator. Its job is to make sure that financial companies and professionals in the finance industry follow the rules in place to protect consumers and to ensure a fair, transparent and efficient financial system.

APRA is Australia’s financial system prudential regulator, which supervises most banks, insurance companies, and super funds to promote the stability of the overall financial system.

What are Australia’s credit laws?

Australia’s credit laws are detailed and comprehensive (for answers to more specific questions, consider contacting a legal professional), but some of their broad points include:

Banks and other mortgage providers must lend money responsibly

The National Consumer Credit Protection Act 2009 (National Credit Act) says that credit licensees must not enter into a credit contract with a consumer, suggest a credit contract to a consumer or assist a consumer to apply for a credit contract if the credit contract is unsuitable for the consumer.

To ensure that they’re lending money responsibly, banks and lenders are obliged to:

• make reasonable inquiries about a consumer’s financial situation, and their requirements and objectives
• take reasonable steps to verify a consumer’s financial situation
• make a preliminary assessment (if providing credit assistance) or final assessment (if the credit provider) about whether the credit contract is 'not unsuitable' for the consumer
• be able to provide the consumer (if requested) with a written copy of the preliminary assessment or final assessment.

Mortgage providers must be licensed

To engage in credit activities, a business must have a credit licence or an authorisation from a credit licensee.

For a mortgage provider to be eligible for the necessary credit license, it must demonstrate that it can:

• engage in credit activities efficiently, honestly and fairly;
• maintain organisational competence, and;
• manage conflicts of interest.

Comparison rates are required

As part of the National Credit Code, credit providers are required to show Comparison Rates whenever they advertise credit products, such as home loans. This rate combines the interest rate with most of the loan’s standard fees and charges, to help give borrowers a better idea of the loan’s total cost, and make it easier to compare different options.

It’s important to remember that a loan’s comparison rate doesn’t include every fee you could be charged, and doesn’t account for other features and benefits that could offer you greater value. Even after looking at the comparison rates of different home loans, it’s still important to take a closer look at each.

What other laws may affect me as a mortgage borrower?

While not specifically falling under the category of credit laws, some of the other rules and regulations that you may come across in your home buying journey may include:

• If you default on your repayments, debt collectors must treat you professionally
• Mortgage brokers are obliged to act in the best interest of borrowers
• Credit reporting bodies must keep the personal information used to generate your credit score private  

Compare home loans in Australia