Tags: Money. Finance guides, tips and councilling. Financial advice.
With the banking royal commission exposing some unacceptable practices in the banking industry I’m taking a break from the super series to write about responsible lending obligations that financial services providers are required to comply with but not all have been doing so. All too often I am asked to assist clients who have borrowed more than will ever be able to repay. In some cases, it is clear that the lender should not have provided the loan – and the borrower should not have borrowed the money. How was the borrower able to convince the lender to advance the money?
The National Consumer Credit Protection Act requires loan providers to make reasonable inquiries and take reasonable steps to verify information about the credit applicant’s finances to ensure that a borrower will be able to repay a loan without experiencing substantial hardship. The information that the lender should obtain includes the borrower’s income, continuity of employment prospects, expenses, assets, debts and credit history.
In addition, a key requirement is for the lender to take account of reasonably foreseeable changes to the borrower’s circumstances such as the end of a honeymoon period on a loan, potential loss of a second income in a two-income family or impending retirement. Notwithstanding the above, lender’s are permitted to use financial models incorporating typical income/spending parameters to assess a borrower’s capacity to service the debt. The use of financial models can speed up the assessment process so is an attractive option for lenders or brokers wanting to meet lending targets.
However, if the borrower defaults on a loan provided using a model, the lender must satisfy the regulator that the model gave a realistic assessment of the borrower’s capacity to service the loan. Proper consideration of a borrower’s capacity to pay makes good sense for both the lender and borrower but lending is a profitable business and borrowing feeds instant gratification so prudence does not always prevail. Borrowing gives consumers access to what the want now so the more they borrow the more they can have. The reality strikes home when they have to repay the debt and can’t do so.
If for whatever reason you are experiencing financial hardship and your debts include loans covered by the responsible lending obligations you may be able to obtain some relief from the lender if you can demonstrate that, at the time you obtained a loan, you did not have the capacity to service it.
Take up your case with the lender and if you don’t get a satisfactory response make a complaint to one of the financial ombudsman services – FOS or CIO. Their websites list which financial service providers that they cover. To conclude its always best if you can stay out of debt and keep control of your financial destiny.
Peter Dallimore is a volunteer Financial Counsellor at the Bribie Island Neighbourhood Centre. He can be contacted via email at email@example.com or you can make an appointment to see him by calling 3408 8440. The Financial Counselling service is free Other free Neighbourhood Centre services include family counselling, emergency relief and free food each Tuesday through Oz Harvest. In addition, the Centre hosts outreach services including Centrelink, Job Search, hearing services and supports some great initiatives including Tax Help and Broadband for Seniors. A small onsite Bargain Shop has super low prices. The Neighbourhood Centre is located at 9 Verdoni St Bellara.