Credit providers, in addition to their common law duty of care, owe responsible lending obligations to consumers when entering into credit contracts.
In 2010 the National Consumer Credit Protection Act 2009 came into effect, which introduced obligations of responsible lending applying to credit providers. The objective of this Act is to improve the quality of the services supplied by credit providers and to encourage prudent lending practices.
At a minimum, credit providers generally need to engage in the following steps to comply with their lending obligations:
- Making reasonable inquiries about the consumer’s financial situation, their requirements and their objectives;
- Taking reasonable steps to verify the consumer’s financial situation; and
- Making a final assessment about whether the credit contract is not unsuitable for the consumer based on the findings of the above steps.
The extent of a credit provider’s inquiries will depend on the individual consumer’s circumstances. When assessing a consumer’s financial situation, the credit provider should take into account factors such as:
- The consumer’s personal circumstances including the consumer’s income and earning capacity, assets and liabilities, expenses, and factors such as age of the consumer and living and family situation;
- The complexity of the credit contract including the capacity of the consumer to understand the credit contract;
- Whether the consumer is a new or existing customer of the provider.
However, not being able to meet the repayments under a credit contract does not automatically render the contract unsuitable and therefore in breach of the credit provider’s obligations. A credit contract will be assessed as unsuitable where the credit contract does not meet the consumer’s requirements and objectives or the consumer would be unable to meet repayment obligations without experiencing substantial hardship. Therefore it is also important for a consumer to be upfront and frank about their financial situation and objectives to ensure that they are receiving the appropriate advice and services.
If you have entered into or been party to a credit contract with a credit provider that was unsuitable in the circumstances and you have suffered financial hardship as a result, contact us on 1800 683 928 to find out how we can assist you.