Responsible Lending:

Recent Cases

and systemic issues

Tim Gough & Abraham Ghaleb

Between 1 January 2016 and 31 December 2016 = 5,197 complaints

521 complaints involved responsible lending

Issue Number

No notice (default listing) 837

Responsible lending 521

Declined current request/application (hardship) 511

Disputed debt 444

Financial hardship (default listing) 441

Undue harassment 356

Declined request/application on previous occasions (hardship) 343

Misrepresentation/misleading conduct 289

Disputed amount of debt 278

Failure to offer the option when borrower in hardship 221

Failure to follow instructions 213

Failure to advise of relevant product information 150

Fraud 144

Offered inappropriate arrangement/variation (hardship) 132

83%

3%5%

3% 4%2%

Consumers

Legal Centres

Financial Counsellors

Solicitors

Credit Repair

Companies

Other

49%

14%

9%

7%

6%

6%3%

6%Small amount lender

Debt collector

Motor vehicle finance

Lease provider

Broker

residential lender

Timeshare finance provider

Other

purchaser

Between 1 January 2016 and 31 December 2016

162 systemic issue and serious

misconduct investigations

23 investigations (14%) related to responsible lending

FSP: small amount lender

Obtained bank statements and payslips

Would not undertake assessment of unsuitability

After the 1st loan, the FSP would not require further evidence of income

(only that the original loan was paid)

FSP would not make inquiries about consumer’s financial situation

FSP would not take steps to verify the

consumer’s financial situation in a meaningful way

Bank statements were obtained but the consumer

would withdraw the whole amount out as cash.

FSP would not take any further steps to verify

consumer’s expenses

FSP agreed to waive approx. $100,000 in relation to

~320 consumers

Inquiring into financial position but not verifying financial position

(particularly expenses)

Verifying expenses – but not doing anything with it

Failing to look into a consumer’s requirements and

objectives (this can not be only to obtain the loan!)

Obtaining information (eg. bank statements) and ignoring

what it says about a consumer’s financial position

An unsuitable loan does not necessarily reflect a systemic issue

Equally, a systemic failure in responsible lending (e.g. relying on HPI or HEM

rather than enquiries into actual expenses) will not necessarily result in all

affected loans being unsuitable

As a result, a systemic failure to lend responsibly creates a challenge when

considering appropriate remediation

Potentially costly and time-consuming both for CIO and FSPs

The aim for all systemic issues is to fix the problem for affected consumers

without imposing unnecessary cost burdens on an FSP. Finding consumers

negatively affected by a systemic failure of responsible lending is necessarily

costly.

In some cases, an FSP may agree to waive or refund the costs of the loan

where consumers had defaulted, rather than undertaking individual

assessments

In others, the solution might be to write to consumers and invite them to use

IDR/EDR, or have suitability reassessed by an independent third party

FSP: Lease, hire or rental provider

FSP was targeting indigenous consumers who lived in remote NSW

Many of the consumers had literary difficulties and were made to

understood they were entering into hire purchase agreements (not leases)

The FSP would regularly visit the communities and walk around approaching

local people to enter into rental agreements

FSP: Small Amount Lender

Consumer obtained a cash advance of $1,000

Later advised the FSP he could not meet the repayments of $50 per

fortnight

When the consumer’s financial counsellor contacted the FSP, he was told:

1. The FSP was not a “charitable freemason”

2. The consumer should “grow some b*#%$”

3. The consumer should borrow from family and friends to repay his debt

4. The consumer was taking money away from his (the FSP’s) kids

5. The FSP would visit the consumer and “he will cry when he sees me”

6. Asked whether the consumer needed a visit to “work things out”

7. Whether the financial counsellor needed a visit to “sort things out”

8. That the FSP hated when a man got a woman to do his dirty work