What is irresponsible lending?
Irresponsible lending wears many masks and comes in all different shapes and sizes. Through various forms of neglect to the consumer or sneaky sales tactics with ulterior motives of gaining staff commissions, It has been given particular ongoing attention by the Australian Securities & Investments Commission.
To be ‘Irresponsible’ especially within the finance business, is not something that you want to hear. The lending professionals have a duty of care to act in your best interests and to make sure that they understand your current financial obligations before giving you new ones! But this does not always happen. Whether meaningful or not, inaccuracy’s on applications can lead to incorrect calculations for further borrowing. It means the money can be lent to you, without you being able to actually afford it. if the assessment is not done correctly.
If you have a loan that you have always struggled to make your committed payments towards or even missed payments within your agreement. It would give a strong indication that the amount may have been lent too high for you to successfully pay your loan, without falling behind or even worse, defaulting! Unless due to unforeseen circumstances.
Here are a few common tell-tale warning signs of irresponsible lending to be aware of:
- You may feel unnecessarily rushed to sign a contract without having adequate time to read through everything to ensure you understand all of the legal terminology and conditions, and then have time to ask follow-up questions.
- Instead of being transparent, if they don’t believe you can afford the loan or are an appropriate candidate, they may try and offer you a “workaround”. By doing this, it creates the illusion that you are receiving excellent customer service and being genuinely cared for as a consumer, but in reality, they could be misusing their power, position and influence to lock you into a financially dangerous contract that you might not possibly be able to fulfil.
- Lenders use risk for rating strategies to determine what your interest rate will be, the higher the risk the higher the rate. Responsible lending would however prevent you from borrowing. Irresponsible lenders could take advantage of these high-risk customers by overly inflating interest rates to amounts so obscene that they may send you spiralling into debt.
- Many lenders will enquire about what assets to possess for the security on your loan, just in case you are unable to fulfil your contract. When approving you for a contract application, irresponsible lenders they may look solely at the equity of the assets you possess rather than whether your source of income will be substantial enough to cover the loan repayments.
Responsible lending guidelines
Credit licensees must comply with the responsible lending conduct obligations as per the National Consumer Credit Protection Act 2009 laid out by the Australian Securities & Investments Commission. These obligations are formally outlined to help protect the consumer and enforce fair and high standard lending activities.
These responsible lending guidelines outline the following:
- The consumer is to receive the licensees’ credit guide
- The licensee must provide a quote to the consumer which outlines the maximum amount the consumer would be required to pay for the product – and they must not charge over that quoted amount
- The licensee must conduct a preliminary assessment before providing credit assistance to determine if a product and contract will be suitable for the client
- The licensee must provide the consumer with documentation disclosing information such as the commission the licensee is likely to receive
- The licensee is prohibited from providing credit assistance to a consumer who will be unsuitable for the contract
- The licensee is prohibited from providing credit assistance to a consumer concerning short-term credit contracts
If you think you have experienced irresponsible lending?
With our industry knowledge we can ask those questions for you! We take a look at your application and contact the required parties to help you find this out! We take care of the entire claims process for you:
- Provide us with your details, including loan contracts if you can (If not we can help)
- We analyse these details and call you to finalise your claim
- We submit your refund claim(s)
- Reductions or money towards your loan.