Avoiding how one individual can circumvent your Responsible Lending Obligations

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A client today advised me of an interesting scenario that impacts on your Responsible Lending obligations and more likely than not, you’d be unaware of it if it happened to you.

In October 2016, a woman with 1 child applied for and was granted a loan. At the time of application, she had no money in the bank but importantly, no other loans at all and after paying the repayment amount due, her income and expenditure budget showed she had a modest amount of discretionary income left each payment period.

In July 2017 a pro bono law firm advised the lender they were working with the borrower and asked for payments to be stopped whilst this process occurred. The lender agreed to this request.

In October, the lender received another letter from the law firm stating that the borrower’s circumstances was that she an aboriginal woman who has had a rough childhood and had substantial financial debts. She had no money and was only in receipt of a Centrelink benefit. A copy of her Centrelink statement was provided along with income and expenditure statement. Noting there were some differences in these figures (including a slight decrease in her Centrelink income) to what they originally used for the assessment, the lender wrote back and amongst other things, requested details of her current income and expenditure along with copies of bank statements. The lender provided a URL hyperlink whereby the law firm could upload these into their system.

The lawyer came back and answered some of the questions but stated that there was no valid reason to request the bank statements and in any case, it was a breach of her privacy and human rights and they were showing her no compassion. The lender said nothing would occur without the bank statements and waited for these to be supplied. The law firm issued the usual threats and informed the lender that if they did not write off the entire balance of the loan, the matter would be referred to its EDR provider and to ASIC. No more was heard from the law firm and so, some 3 months and 29 days later, at the beginning of this month, the client was chased up by issuing a Missed Payment letter off the Min-It system. A week later, photocopies of the bank statements were provided by mail.

Additional Credit Obtained
On reviewing the bank statements, it was found the borrower had been granted loans by 2 other lenders (thankfully, neither are clients) in the time the hardship process was occurring. This presumably occurred in the time after 90 days of our client suspending all payments as on checking with the other 2 lenders, neither was aware of the debt still owed and the bank statements supplied showed no honoured or dishonoured loan payments. The income and expenditure statement now supplied also differs in that the amount of discretionary expenditure that would be available if the repayments on the 2 later loans is excluded is actually higher than she had when originally assessed. There has been ongoing communication with the pro bono lawyer about this and the matter is yet to be concluded.

Social Media webpage out there?
What’s interesting, however, is this client’s hardship analysis that shows in the previous 12 months, they have had a number of similar hardship claims for write-off of loan balances from single mothers. As a result of these, this lender has changed its lending policies in regard to single mothers and they are being reviewed far closer than previously. Given the similarities, the lender concluded there is at least one social media page out there that outlines the process such women can take to have their loan balances cleared of all debt. We recommend you similarly review your hardship claims and lending practices for such applicants and if you are in any doubt as to your ability to meet your responsible lending obligations and loan suitability requirements, look to decline the application. The granting of credit is not a statutory right.

How to possibly avoid this
Irrespective of ethnicity, what has occurred here is really fraud. As this borrower didn’t admit to the loan balance still being due in her application to the other 2 lenders, it could be argued she obtained financial advantage or caused financial advantage by deception. It may be possible in some States to take criminal action for such behaviour but you might possibly ascertain this kind of information by amending your application form and adding these simple 4 questions:

  1. In the past 6 months, have you applied for and been granted hardship or debt relief from any lender or utility company? Yes/ No answers
  2. Who did this (name all)? Leave space for applicant to complete
  3. If Yes, do you still owe money on these loans or utility accounts? Yes/No answers
  4. If Yes, how much do you still owe? Leave space for applicant to complete

If the applicant answers these untruthfully and you can’t detect it, no EDR provider acting fairly and transparently could find against you for failing to undertake subsequent “reasonable enquiries”.

Add them before you, too, become a victim of such deceptive behaviour. In circumstances like this, it’s time the credit legislation was changed to start making borrowers responsible for their own actions. ASIC also need to prevent EDR providers from making adverse findings against credit providers in these circumstances. Just as the Government doesn’t tolerate welfare cheats with it’s benefit funds, you shouldn’t be cheated out of yours either by those seeking to help these desperate and vulnerable consumers at any cost.

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