The national credit reforms under the National Consumer Credit Protection Act 2009 (NCCPA) introduced a National Credit Code (NCCPA Sch 1) and statutory ‘responsible lending’ obligations which apply to loans or increases in loans (FOS 2011, p. 25).
The NCCPA obligations require a financial services provider (FSP) to make ‘reasonable inquiries’ about a customer’s financial situation (such as their capacity to repay) and about the consumer’s requirements and objectives. The Australian Securities and Investments Commission (ASIC) provides guidance on, and examples of, the inquiries an FSP should make when assessing a consumer’s application for credit, including whether a loan was suitable (see FOS 2011, p. 26). For example, a loan should not be allowed if the borrower could never have met the repayments and the FSP is relying on the sale of the family home as their security.
Case study 1
Rita is tricked into signing a loan and mortgage documents by her son-in-law. There is evidence that supports an unfair contract, as the bank’s loan officer had knowledge of Rita’s vulnerability.
Case study 2
A pensioner refinances his credit card debts with a line of credit attached. In fact, the debt has been created by his adult son, who is drug-dependent.
Considerations:
- Does the credit product meet the pensioner’s needs?
- Did the FSP make inquiries as to whether there was an ability to repay the debt?