Responsible lending laws that fuelled a bitter court fight between the corporate regulator and Westpac will be scrapped for banks, which will be subject to less onerous credit rules to encourage the flow of loans and boost the economic recovery from the COVID-19 recession.

In a shift from "lender beware" back towards traditional "borrower beware", Treasurer Josh Frydenberg will on Friday announce the government will in effect dump the responsible lending law that was imposed by the Rudd Labor government in 2009 following the American subprime loan crisis.