Recent accusations against ANZ for lumping a customer with significant and entirely preventable debt show that irresponsible lending is still a bugbear for the financial industry. Attwood Marshall Lawyers Commercial Litigation Senior Associate Georgia Taylor and Property and Commercial Lawyer Mieke Elzer, discuss the importance of obtaining legal advice from an experienced property lawyer about the mortgage and guarantee documents from the banks before entering into a loan agreement. They also discuss what to do if you have a complaint against your bank.
Introduction
More and more homeowners are feeling the pinch due to the impact of rising interest rates on their home loans. The Reserve Bank of Australia lifted the official interest rate to 4.1 per cent in June, hitting levels not seen since 2012.
Experts are predicting another rate rise come July, following a fall in the nation’s unemployment rate that was larger than most experts expected and with inflation not reducing as expected it is not surprising that recent data from Fitch Ratings shows mortgage arrears are also on the rise.
Meanwhile, as rates rise, so too has the risk to those customers with loans approved using misrepresented information. ANZ in particular has been singled out by investment bank UBS’s Evidence Lab and accused of irresponsible lending with an increasing number of home loans being granted without proper documentation.
It follows accusations that the bank failed to verify a woman’s documents during her home loan application, which resulted in her being given an extra $95,982 that she could not afford to pay back.
After the horrors of the stories behind 2019’s Royal Commission into Banking, Superannuation and Financial Services and a large portion of the community now struggling to make ends meet, it’s not surprising to hear of an individual being crippled by unmanageable loan repayments that should never have been agreed to in the first place. There are no doubt countless stories just like this one yet to come to the surface.
Such situations could be avoided by taking necessary steps to protect oneself from irresponsible or predatory lending practices. Borrowers should educate themselves and do their homework on different lenders, interest rates, loan terms, and the types of loans available, as well as seek the appropriate financial advice from an independent financial advisor or broker who can assess that person’s financial situation and the appropriateness of the loan.
Also, before entering a loan agreement, borrowers should obtain legal advice from an experienced property lawyer to ensure they completely understand the loan documents and their obligations under the agreement.
While the big banks are still considering historical complaints for the serious and widespread misconduct that led to the Banking Royal Commission, they cannot be allowed to ignore their legal obligations to lend responsibly to customers today. Individuals should know that there are steps they can take if they have a complaint about the way they have been treated by their bank.
Accusations of irresponsible lending continue today
The ANZ accusations has shone a light on the importance of responsible lending practices, particularly in times of rising rates and inflation.
The ABC reports that Elisabetta Di Nardo claims her mortgage broker and tax agents worked together to add false documents and information to her home loan application, and that ANZ failed to check the data was accurate before handing her a loan that she could not afford.
Ms Di Nardo has alleged that her loan application (which was a low-doc loan):
- Inaccurately stated a significantly higher amount of annual income and superannuation balance than was the case
- Listed tax agents that Ms Di Nardo says she never had any contact with
- Contained an inflated valuation of her home
She accepted an extra $95,982 from the bank because she thought the bank had determined she could afford the repayments, and the inaccuracies in her refinancing application (including documents that she claims never have signed) did not come to light until several years after the fact. The mortgage brokers involved – who were not identified due to legal reasons – have denied any wrongdoing.
The news story comes after ANZ was hit with a $10 million penalty in March 2023 because its Home Loan Introducer Program was found to have breached consumer credit protection laws. It was also fined $25 million in October 2022 for misleading customers by not giving back benefits it had promised customers for certain accounts.
Dangers of low-doc loans
Low-doc loans are loans that require less documentation to prove income, assets and liabilities, than what you would normally need to file with a traditional home loan application
While these loans can be a great option for self-employed individuals and business owners who may find it difficult to provide the standard paperwork required for a full doc loan, they usually come at a higher interest rate than traditional home loans and often include additional fees, inflated interest rates and unforgiving exit terms.
One common misconception is that they require less evidence than a traditional loan, but that is not the case, they just allow different types of evidence to be submitted to support your application. When entering a loan agreement, it is always best to obtain independent advice from a financial planner or accountant to help you determine if the product is right for you and you will be able to meet your financial obligations under the loan agreement.
An experienced property lawyer can also assist with providing advice on loan documents, helping you spot unsuitable terms and conditions that could have otherwise left you in the lurch with crippling consequences.
Understanding responsible lending
Responsible lending laws were introduced in 2009 after the Global Financial Crisis, requiring lenders to carry out a series of checks before handing out loans to make sure the terms of servicing and repaying those loans were within the consumer’s financial means.
Any entity that holds a credit license must comply with the responsible lending obligations set out in Chapter 3 of the National Consumer Credit Protection Act 2009 (Cth) (“the NCCP Act”).
Under regulations from the Australian Securities and Investments Commission (ASIC), credit licensees are obliged to ask consumers about their financial situation and to take reasonable steps to verify the responses received.
Credit licensees must also assess whether a credit contract is unsuitable for a consumer and provide a copy of that assessment to the consumer if requested.
Mortgage brokers also have a role to play in responsible lending and are bound by Part 3-5A of the NCCP Act. This includes acting in the best interests of consumers when dealing with credit contracts. There are also strict obligations around conflicts of interest, such as a ban on receiving or giving conflicted remuneration.
Even with those laws in place, there has still been scandal in the financial industry, culminating in 2019’s Royal Commission in to Banking Misconduct – which came up with 76 recommendations to fix the widespread poor lending practices that were exposed.
More worryingly, during the Covid-19 pandemic of 2020-2022 Australia’s credit framework was simplified and responsible lending obligations were significantly relaxed. Lenders were given greater flexibility when determining loan suitability, with the aim of allowing struggling consumers and small businesses timely access to credit.
The Big Four banks – Commonwealth Bank, ANZ, National Australia Bank and Westpac – now appear annually before the parliamentary Standing Committee on Economics, where they are grilled on how they balance the interest of borrowers, depositors, shareholders and the wider community.
The committee is focused on consumer protection issues, such as how the banks consider the financial position of borrowers, particularly those that are vulnerable, what actions they are taking to protect consumers from scams, and how the recommendations from 2019’s Royal Commission into Banking, Superannuation and Financial Services are being implemented.
The next hearing will be held on July 12.
But the recent relaxation of principles has had many experts concerned we could be headed for a repeat of the irresponsible lending practices that took place in the lead up to the GFC.
Steps to take to make an irresponsible lending complaint
Our Commercial Litigation team have been working actively since the Royal Commission to assist consumers in lodging complaints with financial institutions regarding both historic and current irresponsible lending and breaches of lending obligations. Complaints handled by Attwood Marshall have dated back to conduct which has occurred in the 1990’s to as early as this year.
We in the first instance, always recommend making a complaint to the financial institution and take steps to ask for a copy of your full lending/ banking file. This file can include internal file memoranda, call recordings, loan documents and supporting evidence. After the file is received review it thoroughly, ask any questions of the bank and ask for a case number with their complaints team.
At this stage, we recommend you obtain independent legal advice from a lawyer experienced in banking disputes about your rights and obligations. Attwood Marshall Lawyers can assist at any stage of a complaint.
Attwood Marshall Lawyers – helping you make an informed decision when entering loan agreements, and resolving disputes effectively if they arise
If you are involved in a dispute with your bank over irresponsible lending, loan repayments, fees, or unsuitable products, our Commercial Litigation and dispute resolution lawyers can help you understand your rights and obligations and the best path to take to resolve the matter.
We use reputable forensic accountants to assess the conduct of the bank and calculate the losses suffered because of this conduct.
For initial advice about your dispute, please call our Commercial Litigation Department Manager, Amanda Heather, on direct line 07 5506 8245, email aheather@attwoodmarshall.com.au or free call 1800 621 071.
Attwood Marshall Lawyers also has an expert Property and Commercial team, made up of solicitors who work in the real estate and property lending space day-in and day-out. Our experienced property lawyers can assist clients with their conveyancing needs, while also providing detailed advice on mortgages, securities, and guarantor documents.
For loan document advice or property law related matters, please contact our Property and Commercial Department Manager, Jess Kimpton, on direct line 07 5506 8214, mobile 0432 857 300 or email jkimpton@attwoodmarshall.com.au.
You can also book an appointment with our lawyers instantly by using our online booking app.
