tim gough & abraham ghaleb - credit & investment ombudsman
TRANSCRIPT
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