Go to content

Credit law toolkit

Unsuitable lending

In this section:

How to Guide: Challenging a lending decision—credit cards & personal loans

This How to Guide covers challenging a credit card debt on the grounds that it is unjust or unsuitable. The main reason a credit card debt will be considered unjust or unsuitable is where the consumer was granted a credit card limit, or limit increase, where the credit provider knew or ought to have known that the consumer could not afford to repay the credit card without substantial hardship. This Guide should be read in conjunction with Responsible lending conduct and Unjustness.

Caseworkers see many consumers who have too much credit card debt. Before launching into allegations of unjustness or unsuitability, you need to find out some information from the consumer such as:

  • Overall financial situation including outstanding debts and current income
  • Approximately when the credit was obtained and when the limit increases occurred
  • If their income has dropped and when this occurred (and why)

When is the contract unlikely to be unjust or unsuitable?

Some examples of when the contract is unlikely to be unjust are:

  • If the change in income is recent and after the last limit increase
  • The consumer deliberately lied about their income when applying for the credit card
  • The consumer has sufficient savings or investment to cover the payment of the credit card
Remember: If the consumer deliberately lied on the loan application then this is obtaining credit by deception. If the consumer was a willing and knowing participant in this then it is very difficult to argue a loan is unjust.

Options if the contract is not unjust or unsuitable

The options are:

How to tell if the contract is unjust or unsuitable

The test for unsuitability is that at the time the credit card was granted or the limit increased the consumer could not afford to meet his or her financial or personal loan obligations under the credit card contract without substantial hardship.

For personal loans you need to demonstrate that the client could not afford the repayments. For credit cards, if you can demonstrate that your client could not meet the minimum repayments on the credit card without substantial hardship, you probably have a good case. If, on the other hand, the consumer can meet the minimum repayments, but could not pay off the debt, or not without substantial hardship, then the case is more difficult but it is still arguable. ASIC Guide RG 209 (See Responsible lending conduct for more details) says at page 35:

Example

For credit cards, there may be some risks associated with assessing a consumer as having the capacity to repay the contract based solely on being able to meet the minimum monthly repayments. If, by paying only the minimum monthly repayments, the consumer is likely to take a long period of time to repay the maximum limit on the card, credit licensees should consider whether this would meet the consumer’s requirements and objectives (i.e., taking a number of years to repay a relatively small debt, and paying high amounts of interest on this debt).

If the responsible lending provisions apply, the consumer’s financial situation has not changed, and it would take the consumer more than two years to pay off the debt if they cut the card up and stopped using it, then it is worth raising a dispute. Of course, the longer it would take the consumer to pay the debt off, the stronger the case.

The ASIC credit card calculator, available at www.moneysmart.gov.au is a useful tool for calculating how long a consumer would take to pay off the debt. You must first calculate how much the consumer can afford to pay based on their income and expenditure. Next, you enter the details of the contract into the calculator. Then you enter the amount the consumer can afford into the Choose faster repayment field to calculate the number of years it will take to pay off the debt at the current interest rate. (Note: Do not simply use the minimum repayment calculation, as this will reduce the minimum repayment as the debt reduces, exaggerating the number of years required to pay the debt).

Some examples of arguably unsuitable credit card debts

  • The client is on Centrelink and the credit card debt is over $3,000 with an interest rate of 19%. He has $50 per month or less available income to pay this debt. He has no other debts.
  • The credit card limit was increased when the consumer could not afford to make the required repayments on their other debts.
  • The client was meeting her minimum repayments and occasionally paying extra. Her balance, however, never dropped below 50% of the available limit and the general trend of the balance was upward over time. The client was then offered a limit increase, gradually maxed out the card over a number of months, and went into default.

Client circumstances where an unjustness argument should be considered:

  • The consumer did not receive the benefit of the loan
  • The consumer could not understand the meaning and consequences of the loan for example, illiteracy, non-English speaking background, disability
    • Unfair tactics were used
    • The consumer was misled about the loan
    • The credit provider knew or ought to have known the consumer did not understand what was happening or took advantage of the consumer

The above list is not exhaustive.

Remember: If the responsible lending provisions do not apply then unjustness may be the main argument. For loans granted prior to 1 July 2010 (non-bank finance companies) or 1 January 2011 (all credit providers) responsible lending is not available as an argument.

Each consumer case is different. The strength of each case will depend on the circumstances.

Arguing unjustness or unsuitability

There are two relevant parts of the Credit Law:

  • Responsible lending conduct division 3–2 of National Consumer Credit Protection Act 2009 (for new credit card contracts or limit increases after 1 January 2011)
  • Section 76 of the National Credit Code (s. 70 of the Consumer Credit Code)

Before you raise a dispute with the credit provider

  • Get the relevant details and evidence of the consumer’s income at the time the credit or credit limit increase was granted.
  • Get details of the amount and timing of the credit limit increases from the credit provider if the consumer does not remember the details. (See How to Guide: Requesting documents and Sample letter: Requesting documents.)
  • For all loans, consider your clients personal circumstances:
    • Have they obtained credit before – are they sophisticated or naïve
    • Were they misled or coerced by a third party?
    • What is their age, background and literacy skills?
  • For loans covered by the responsible lending provisions, consider–
    • Did the credit provider make reasonable enquiries about the consumer’s financial situation?
    • Did the credit provider take reasonable steps to verify the consumer’s financial situation?
    • What else did the credit provider already know about the consumer (such as that their Centrelink or salary is paid into an account with the same bank, or their repayment history on this card or another loan)?
    • Did the credit provider make reasonable enquiries about the consumer’s objectives and requirements? (Ask for a copy of the assessment required under s. 129 of the NCCP.)
    • Is the loan unsuitable having regard to all the above?
  • For all loans, consider–
    • Could the consumer have met their obligations under the loan without substantial hardship? Could the lenders have known this by reasonable enquiry of the debtor?
    • Is there anything else about the loan contract, or the circumstances in which it was entered, to suggest that the loan might be unjust? (See the relevant list of factors in Unjustness.)
  • Think about the likely outcome . Will the dispute achieve a workable outcome for the consumer?
  • Explain to the consumer that the card is always cancelled (and never to be reused) in this type of dispute. You cannot reasonably argue for a debt to be reduced while the consumer continues to run up debt!

Why is the outcome so important?

Sometimes, even if you win the unjustness or unsuitability case, the debt is not reduced sufficiently to avoid the consumer needing to consider going bankrupt. This is because the consumer will usually be required to repay any money for which they received a benefit. The best–case scenario (if you can show unjustness or unsuitability) is:

  • The debt is reduced to the amount the consumer could afford if the loan had been properly assessed to be repaid without substantial hardship
  • All interest and fees are reversed on the amount above the last limit increase that was affordable
  • The repayments made to date are deducted from the amount remaining
  • The consumer needs to make repayments on the remaining debt

If the consumer was granted a series of limit increases up to $20,000 while they were working and then received further limit increases after they lost their job and became permanently disabled, the outcome would only get the debt back down to $20,000. If the consumer still cannot afford to repay this reduced amount, then the best hope is to negotiate a lower debt (that is affordable) or a release on compassionate grounds.

EDR: unsuitability and unjustness

It is recommended that all disputes about unsuitability and unjustness be raised in EDR if you are unable to resolve the dispute with the credit provider. If legal action is threatened or commenced, you should consider lodging immediately in EDR. The relevant EDR scheme for almost all credit card disputes is the Financial Ombudsman Service. The way FOS will consider the dispute is very relevant to raising a dispute on unjustness.

As EDR involves a process of facilitating negotiation, almost all unjustness disputes will be resolved by negotiation. It is recommended that you recognise this and be prepared to make an offer to settle the dispute. A sample letter is attached you can use to send to the credit provider.

Remember: You can often get a better settlement in negotiation than if the matter proceeded to determination in EDR!

Hints for EDR:

  • Read the FOS approach to responsible lending
  • Keep negotiating
  • Recommend the consumer make the payments you are trying to negotiate as a final outcome—this is a gesture of good faith.
  • Make sure you respond by all relevant deadlines
  • If you are relying on your client’s limited English or other personal factor, consider what evidence you can get to back this assertion up
  • Get advice if anything tricky comes up
FOS cannot make a determination about a repayment arrangement unless it is on the grounds of financial hardship. If you are proceeding to determination at FOS you must raise unjustness and financial hardship.

Time limit problems

You need to check when the loan contract was entered or refinanced as soon as possible so you are aware of any potential time limits that may expire soon.

The FOS and CIO time limits for unjustness are:

  • Within two years of the date the contract is rescinded, discharged or otherwise comes to an end; and
  • Where, prior to lodging the Dispute with EDR the consumer received an IDR Response in relation to the Dispute from the Financial Services Provider – within two years of the date of that IDR Response.

Whichever is later.

The FOS and CIO time limit for responsible lending is:

  • within six years of the date when the consumer became aware (or should have reasonably become aware) of the loss; or
  • Where, prior to lodging the Dispute with EDR the consumer received an IDR Response in relation to the Dispute from the Financial Services Provider – within two years of the date of that IDR Response.

Whichever comes first.

If you or the consumer have raised a dispute with the credit provider (and received a response), you should always seriously consider lodging a dispute in EDR straightaway if the dispute remains unresolved.

Credit limit increases may occur over many years, with the consumer able to maintain minimum repayments by paying income onto the debt and then using the card for living expenses. The time limit means that the original credit granted and all limit increases can be reviewed as part of the dispute.

If EDR is unsuccessful, you can seek legal advice about going to court and the relevant time limits are:

  • Unjust contracts: two years from the date the contract is rescinded, discharged or otherwise comes to an end. This means the time limit cannot expire while the debt remains outstanding and there is no court judgment.
  • Responsible Lending Conduct: (If the contract was entered, or the relevant limit increases occurred after 1 January 2011), six years from the date of the granting of the credit.
Remember: File in EDR straight after receiving a final response from IDR. Be aware of the time limits for FOS & CIO for different types of complaint

Sample letter: Challenging a lending decision—credit cards & personal loans

Date

Credit provider

(Write to the IDR contact person for the credit provider available at www.fos.org.au or www.cio.org.au – use search for members)

Address

“Without prejudice” (only if making a settlement offer)

Dear,

RE: Client name
Type of loan:
Account number:

I am assisting (client name) in relation to the above loan account.

Please find attached an authority to release information, signed by my client.

My client wishes to raise a dispute about the granting of his/her credit card and/or credit card limits. My client contends that (name of credit provider) has granted credit to my client when you knew or should have known my client could not afford to repay the debt without substantial hardship.

My client’s circumstances

My client instructs me that:

Example only of matters to mention

  • My client’s sole source of income is Centrelink benefits since 1996. My client receives the Disability Support Pension. Evidence of my client’s income is attached.
  • My client has a number of chronic illnesses, including emphysema.
  • My client is 62 years old.
  • My client obtained a credit card from you on or about 2005 with an initial limit of $2,000. Since that time there have been three increases in her credit card as follows:
  • Increase from $2,000 to $3,000 in 2006
  • Increase from $3,000 to $5,000 in 2011
  • Increase from $5,000 to $7,000 in 2013

My client’s dispute

My client contends that:

She could not pay the increased minimum repayments without substantial hardship for the limit increases after $2,000.

The increased limits are unjust and/or unsuitable under:

  • Section 76 of the National Credit Code and/or
  • The Responsible Lending provisions of the National Consumer Credit Protection Act 2009.

Settlement Offer

My client wishes to offer to settle this dispute on the following basis:

Example of a settlement offer

  • The debt is reduced to $2,000.
  • My client repays the debt at $50 per month.
  • No interest or fees to be charged.
  • No default listing on my client’s credit report.

Please respond by  /  /  .

I assume you will not take any further action against my client (including making any adverse listing on my client’s credit report) while you are investigating my client’s dispute and considering the above offer. If this assumption is incorrect, please advise me in writing immediately.

Yours faithfully,

How to Guide: Challenging a lending decision—home loans

This How to Guide covers challenging home loans as unjust or unsuitable. This Guide should be read in conjunction with Responsible lending conduct and Unjustness.

Some home loans are arguably unjust or unsuitable.

Some common examples

  • Where the credit provider made no assessment of the consumer’s ability to repay. These are often called “lo–doc” or “no–doc” loans. The consumer usually self– certifies their own income.
  • Predatory home loans are usually high interest loans, often as a second mortgage. These loans all seek to avoid the Credit Law with the use of a Business Purpose Declaration. They may involve self–certification, or false application information, or they may be blatant asset–based lending.
  • Home Loans where the finance broker has put false information in the loan application.
  • For loans covered by the new responsible lending conduct provisions, there may be loans that the consumer can afford that are nevertheless unsuitable. See Responsible lending conduct.
Remember: If the consumer deliberately lied on the loan application then this is obtaining credit by deception. If the consumer was a willing and knowing participant in this then it is very difficult to argue a loan is unjust.

Before launching into allegations of unjustness or unsuitability, you need to find out some information from the consumer:

  • Overall financial situation including outstanding debts and current income
  • Overall financial situation including outstanding debts and income at the time the consumer applied for the loan
  • What the consumer recollects of any conversations with the credit provider or broker when the loan was being considered and applied for
  • Other information relevant to the unjust contracts check list (See Unjustness)

You also need to request all relevant documents including: (See How to Guides and sample letters: requesting documents):

  • The loan application
  • Loan contract and mortgage
  • Any notices under the NCC
  • Copies of all account statements
  • Copy of the assessment required under s. 129 of the NCCP. This will be loans entered from 1 July 2010, or 1 January 2011, depending on the type of credit provider (See Responsible lending conduct for more details)

So when is a home loan arguably unjust or unsuitable?

For loans covered by the responsible lending conduct provisions, whether:

  • The consumer could repay the loan without substantial hardship; and/or
  • the loan met the consumer’s requirements and objectives.

For unjustness, the client circumstances which should be considered:

  • The consumer did not receive the benefit of the loan eg. it was given to their child. Although it is noted that people can gift money so it is important to show that unconscientious advantage was taken of the consumer
  • The consumer could not understand that their home may be sold in the event of default. The consumer may not have understood this because of for example, illiteracy, non-English speaking background, disability
  • Unfair tactics were used.
  • The consumer was misled about the loan. For example, the consumer was told they could not lose their home
  • The credit provider knew or ought to have known the consumer did not understand what was happening or took advantage of the consumer
  • Whether the could afford to repay the loan without substantial hardship.

The above list is not exhaustive. With unjustness, all the factors are considered in deciding whether a loan is unjust. One factor of unjustness may not be sufficient.

Remember: If the responsible lending provisions do not apply then unjustness may be the main argument. For loans granted prior to 1 July 2010 (non-bank finance companies) or 1 January 2011 (all credit providers) responsible lending is not available as an argument.

Some examples:

  • The client is on Centrelink. Consumer obtains a home loan for $250,000 and certifies that her projected income will be $60,000 on the basis she may get a job. She told the broker she was on Centrelink. She refinances an existing home loan of $200,000 and borrows $50,000 extra. The only way to repay the loan is to sell the home.
  • A consumer has a home loan of $200,000 and is barely managing the payments. There have been several defaults in the last few years on the existing loan. The consumer decides to borrow another $20,000 for renovations. The credit provider approves the loan and the consumer defaults on the increased loan on the first repayment.
  • A consumer is seeking a loan to build a home. The consumer wants to pay the loan off over 25 years. The credit provider convinces the consumer to borrow a little more than they thought they needed by structuring the loan as interest only for the first three years. The consumer manages the repayments for the first three years, but defaults almost immediately when the repayments increase. Worse, the value of property in the area has decreased and the consumer, who has not reduced the balance at all in the interest only period, is facing a potential negative equity situation.
  • A consumer is paying off a loan comfortably when a broker offers to assist him to pay off his home loan faster. The broker convinces the consumer to switch to a line of credit loan with a linked credit card on the basis that paying the consumer’s entire salary into the home loan and living off the credit card until the end of the month will cut years off the loan. The consumer makes the switch but discovers that the increased interest rate more than negates any savings he can make. He also paid the broker a fee of several thousand dollars to set up the loan.

Each case is different. Some cases will be easier to win than others. The result may also be different depending on when the loan was entered (which law applies), and the personal characteristics of the consumer (a comparatively well–educated consumer may have trouble establishing that a loan was unjust).

What is “asset lending”?

“Asset lending” is when the credit provider gives a loan with no interest in the consumer’s ability to pay but knowing the loan will be repaid from the sale of the home. Arguably, this is an unjust loan. If the responsible lending conduct provisions apply, there is a presumption that if the only way a consumer could meet their obligations under a loan contract is to sell their home, then the loan may be unsuitable. This does not mean that asset lending is illegal, only that the onus is on the credit provider to prove that such a loan is not unsuitable.

Arguing unjustness or unsuitability

There are two relevant parts of the Credit Law:

  1. Responsible lending conduct division 3–2 of National Consumer Credit Protection Act 2009 (for new loans, refinances, or limit increases from 1 July 2011, or 1 January 2011, depending on the type of lender)
  2. Section 76 of the National Credit Code for loans

Before you raise a dispute with the lender:

  • (If possible) make sure you have all relevant documents.
  • Make sure you have a detailed statement from your client about what happened when they got the loan. This needs to cover–
    • Why they got the loan?
    • What were they told about the loan? What explanation was received about the loan and the consequences of the loan?
    • Did they get a benefit from the loan?
    • Financial position at the time of obtaining the loan.
  • For loans covered by the responsible lending provisions, consider–
    • Was the credit provider licensed (or registered)?
    • Did the lender make reasonable enquiries about the consumer’s financial situation?
    • Did the lender take reasonable steps to verify the consumer’s financial situation?
    • What else did the lender already know about the consumer (such as that their Centrelink or salary is paid into an account with the same bank, or their repayment history on another loan)?
    • Did the lender make reasonable enquiries about the consumer’s objectives and requirements?
    • Is the loan unsuitable having regard to all the above?
  • For all loans, consider–
    • Could the consumer have met their obligations under the loan without substantial hardship? Could the lender have discovered this by making reasonable enquiries?
    • Is there anything else about the loan contract, or the circumstances in which it was entered, to suggest that the loan might be unjust?
  • Think about the likely outcome. Some considerations–
    • Will the consumer have to sell their home even if successful with the unjustness dispute?
    • Should the consumer be continuing with making repayments?
    • Will there be a large shortfall if the home has to be sold?
  • A valuation of the property from local real estate agents (as an indication of the value of the property).

What if there was a broker involved in setting up the loan?

If there is a broker involved, you will usually need to lodge a complaint about the broker as well (which may involve complaining to two different EDRs). If your complaint is successful, responsibility may be split between the broker and the credit provider depending on the circumstances. You will need to get any relevant documents from the broker also. If the responsible lending conduct provisions apply, you should request a copy of the preliminary assessment by a credit assistance provider under the NCCP, and ask all the same questions included under unsuitable lending above in relation to the broker’s role. (See Finance brokers for more information on problem solving in relation to brokers.)

Why is the outcome so important?

Sometimes, even if you win the case under any of these provisions, the debt is not reduced sufficiently to allow the consumer to keep their home.

The best–case scenario (if you can show unjustness or unsuitability) is:

  • The debt is reduced to the amount that the consumer received as a benefit. For example, if the consumer–
    • Bought a home, this is a benefit
    • Refinanced another loan or loans, this is a benefit
    • Borrowed money to renovate their home, this is a benefit
  • The set–up costs for the loan are reversed
  • The interest is still payable on the loan (although may be reduced)

If the consumer cannot afford to repay the loan after successfully arguing the loan is unjust or unsuitable, they need to think about selling their home. The big question will then be whether there is equity in the home or negative equity.

Equity means that the sale price for the home is higher than the loan. If the equity is small (under $20,000) then it is likely some of that equity might be reduced because of the costs of selling and possible legal costs and default fees if the credit provider is proceeding with enforcement action. It is recommended that the consumer sell the home and try to obtain the best price.

Don’t forget to reassure the client that if there is equity they will get that money even if the credit provider sells the house.

Negative equity means that the sale price is less than the loan. This means that after the home is sold the consumer will still owe the credit provider money. How much money will be owed is important. There are three options:

  1. Make a repayment arrangement on the remaining debt. If the consumer is likely to want to take this option then they should continue to try to make repayments while the home is sold. This will reduce the amount owing when the home is sold.
  2. Request that the remaining debt be waived.
  3. Consider bankruptcy.

If the negative equity is large and bankruptcy is inevitable anyway due to multiple debts, the best solution is for the consumer to surrender the home as soon as they have found somewhere else to live.

Are there circumstances when it is possible to keep the home?

Yes. This will be where the home loan is not too large and a reduction in the amount could make a repayment arrangement workable. If your client is over 55 a reverse mortgage may be a possible remedy to consider.

Are there circumstances where the consumer will be repaid?

Compensation for loss is available under the new responsible lending provisions. This would usually only be likely if the home is sold with little or no equity. For example, if a consumer had considerable funds from a compensation payout or a previous property settlement prior to getting the loan but little income, and those funds were depleted by set–up costs, interest, default fees, and enforcement costs, some compensation may be payable if the loan was found to have been unsuitable. Any amount payable would still need to be set off against the benefit obtained by living in the home.

EDR and unjustness

If legal action is threatened or has commenced, you should file in EDR immediately. It is essential to file in EDR before the credit provider gets judgment. You cannot get into EDR after judgment to dispute unjustness.

It is recommended that all disputes about unjustness be raised in EDR in the first instance. Therefore, the way EDR will consider the dispute is very relevant to raising a dispute on unjustness.

As EDR involves a process of facilitating negotiation, almost all unjustness disputes will be resolved by negotiation. It is important you make sure that you have good evidence to support your case. It is also recommended you recognise and be prepared to make an offer to settle the dispute. A sample letter is attached you can use to send to the credit provider.

Remember: You can often get a better settlement in negotiation than if the matter proceeded to determination in EDR.

Hints for EDR:

  • Read the FOS approach to responsible lending and bulletin 60 on maladministration in the decision to lend for secured loans.
  • Keep negotiating.
  • If the aim is to keep the home, recommend the consumer make the payments you are trying to negotiate as a final outcome. This is a gesture of good faith.
  • Make sure you respond by all relevant deadlines.
  • Get advice if anything tricky comes up.

FOS cannot make a determination about a repayment arrangement unless it is on the grounds of financial hardship. Therefore, if you are proceeding to determination at FOS you must raise unjustness and financial hardship.

Time limit problems

You need to check when the loan contract was entered or refinanced as soon as possible so you are aware of any potential time limits that may expire soon.

The FOS and CIO time limits for unjustness are:

  • Within two years of the date the loan was rescinded, discharged or otherwise come to an end; and
  • Where, prior to lodging the Dispute with EDR, the consumer received an IDR Response in relation to the Dispute from the Financial Services Provider – within two years of the date of that IDR Response.

Whichever is the later.

The FOS and CIO time limit for responsible lending is:

  • within six years of the date when the consumer became aware (or should have reasonably become aware) of the loss; or
  • Where, prior to lodging the Dispute with EDR the consumer received an IDR Response in relation to the Dispute from the Financial Services Provider – within two years of the date of that IDR Response.

Whichever comes first.

If you or the consumer have raised a dispute with the credit provider (and received a response), you should always seriously consider lodging a dispute in FOS straightaway if the dispute remains unresolved.

Under the NCC the time limit for unjust contracts is two years from the date the contract is rescinded, discharged, or otherwise comes to an end. This means the time limit cannot expire while the debt remains outstanding and there is no court judgment. FOS and COSL may change their rules in the near future to reflect this, so it is important to check the relevant time limits at the time you are considering a potential complaint.

The time limit under the NCCP for breaches of the responsible lending obligations is six years from the date of any breach, which will usually be six years from the granting of the loan.

Remember:

  • File in EDR straight after receiving a final response from IDR
  • Be aware that if the loan has ben refinanced there is a two year time limit from the date the loan was refinanced
  • If arguing responsible lending be aware of the six year time limit
  • Be aware that different time limits apply for different types of complaint

Sample letter: Challenging a lending decision—home loans

Date

Credit provider

(Write to the IDR contact person for the credit provider available at www.fos.org.au or www.cio.org.au – use search for members)

Address

“Without prejudice” (only if making a settlement offer)

Dear,

RE: Client name
Type of loan:
Account number:

I am assisting (client name) in relation to the above loan account.

Please find attached an authority to release information, signed by my client

My client wishes to raise a dispute about the granting of his/her loan. My client contends that (name of credit provider) has granted my client a loan when it knew or should have known my client could not afford to repay the debt or not without substantial hardship.

My client’s circumstances

My client instructs me that:

Example only of matters to mention

Delete the options that are not applicable:

  1. My client obtained a loan/lease from (name of credit provider) of $    (insert amount borrowed) for (insert purpose of the loan/lease) on  /  /  and/or my client received limit increases of: insert details of limit increases – amounts and dates.
  2. At the time of the seeking the loan, my client’s financial position was as follows: insert details of client’s income, expenditure, assets, and debts. (Note: if there are multiple limit increases or refinances details of the client’s circumstances at each point will need to be provided).
  3. My client’s situation at the time of getting the loan was: age, number of dependents, any illness or disability, employed, any other relevant factor.
  4. My client’s requirements and objectives in relation to the loan were: insert details of client’s requirements and objectives. Examples might include – refinancing his home loan to save money, to consolidate debts in order to save money, to purchase a motor vehicle. How much details will depend on the nature of the complaint and the complexity of the product.
  5. My client was told: insert details of any conversations or representations that are relevant to the dispute.
  6. My client could not afford the loan. Give details of any hardship
  7. The loan did not meet my client’s objectives and requirements because: insert details of why loan was unsuitable.
    • Make reasonable enquiries as to my client’s financial situation;
    • Take reasonable steps to verify my client’s financial situation;
    • Make reasonable enquiries as to my client’s needs and objectives;
    • Adequately assess whether my client could meet the financial obligations under the loan without substantial hardship;
    • Adequately assess whether the loan granted met my client’s requirements and objectives.
  8. (name of credit provider) failed to:
  9. My client’s loan is unjust under s. 76 of the NCC because: (address any of the list of factors included in s. 76 (See Unjustness) that are relevant to the case).
    • My client’s completed loan application;
    • My client’s loan contract;
    • A copy of the assessment provided by the (name of Credit Provider) under the NCCP Act (if applicable);
    • A copy of correspondence with (name of credit provider) in relation to this dispute;
    • Any supporting evidence to establish the client’s financial situation at the time of the loan being granted.
  10.  I attach copies of:
  11. My client is also in financial hardship: (insert details of client’s income, expenditure, assets, and debts).
  12. My client’s situation now is: age, number of dependents, any illness or disability, employed, any other relevant factor.

My client’s dispute

My client contends that:

  1. He/she/they could not pay the home loan repayments without substantial hardship.
    • Section 76 of the National Credit Code;
    • Section 25.1 of the Code of Banking Practice (if a subscribing bank) or Section 7 of the Mutual Banking Code of Practice (if a subscribing credit union or building society) (if applicable);
    • The Responsible Lending Conduction provisions of the National Consumer Credit Protection Act 2009.
  2. The loan is unjust and/or unsuitable under:

Settlement Offer

My client wishes to offer to settle this dispute on the following basis:

  • My client has or will put their home on the market to be sold. My client will provide evidence of this including a copy of the contract of sale and contract with the real estate agent within 14 days of the date of this letter;
  • My client will exchange contracts on the sale of their home within four months of your acceptance of this offer;
  • All set–up costs are refunded, including any interest charged on those costs;
  • All default fees and enforcement costs are refunded;

No default listing made on my client’s credit report.

Please respond by  /  /  .

I assume you will not take any further action against my client (including making an adverse credit listing on your client’s credit report) while you are investigating my client’s dispute and considering the above offer. If this assumption is incorrect, please advise me in writing immediately.

Yours faithfully,

EDR Guide: Responsible lending dispute

  • The contact details for both EDR schemes are:
  • Applying online to EDR is processed faster and you get confirmation of lodgment quickly.
  • You can apply online for your client.
  • EDR stops all legal action while the dispute is being considered
  • If court proceedings have commenced, always lodge online and make sure you get confirmation of successful lodgement and that you state in the application that court proceedings have commenced.

This guide is for completing an application to EDR. There are a number of questions in the form but this guide concentrates on answering the problem description and the requested resolution.

Unjust/Unsuitable contracts and EDR

Both EDR Schemes have the power to review lending decisions as either unsuitable under the NCCP or unjust under s. 76 of the NCC. The relevant rules are:

FOS – Terms of Reference:
  • Clause 8.2 Disputes must be resolved according to legal principles, among other things;
  • Clause 9.1 (a)–(d) & 9.2 FOS can order the repayment of a sum of money, forgiveness or variation of a debt, the release of security for a debt, repayment, waiver, or variation of a fee, a variation in the applicable interest rate on a loan, the reinstatement or rectification of a contract, and compensation for direct financial loss.
CIO – Rules
  • Clause 1.5 refers to relevant legal requirements or rights provided by law to consumers in relation to the subject matter of the Complaint;
  • Clause 9 of the CIO rules refers to the ability to order the payment of a sum of money, the variation of a debt, the release of security for debt, the repayment, waiver or variation of a fee, a variation in the applicable interest rate on a loan, the discontinuation of enforcement action, require the member (credit provider or broker) not to enforce a default judgment, the release of a complainant from a contract, and compensation for direct loss.

Complaint Forms

The complaint forms for both EDRs are available online. You can also lodge online, which can be vital if the dispute is urgent. If you don’t have all the information and evidence you need, lodge with the best information you have at your disposal and forward the remainder as soon as possible.

Most of the form is self–explanatory. The following is a guide to the two questions requiring considerable detail.

Dispute/Complaint Details

Delete the options that are not applicable:

  • My client obtained a loan/lease from (name of credit provider) of $(insert amount borrowed) for (insert purpose of the loan/lease) on / / and/or my client received limit increases of: insert details of limit increases – amounts and dates.
  • At the time of the seeking the loan, my client’s financial position was as follows: insert details of client’s income, expenditure, assets, and debts. (Note: if there are multiple limit increases or refinances details of the client’s circumstances at each point will need to be provided).
  • My client’s situation at the time of getting the loan was: age, number of dependents, any illness or disability, employed, any other relevant factor.
  • My client’s requirements and objectives in relation to the loan were: insert details of client’s requirements and objectives. Examples might include – to refinance his home loan to save money, to consolidate debts in order to save money, to purchase a motor vehicle. How much detail will depend on the nature of the complaint and the complexity of the product.
  • My client was told: insert details of any conversations or representations that are relevant to the dispute.
  • My client could not afford the loan. Give details of any hardship.
  • The loan did not meet my client’s objectives and requirements because: insert details of why loan was unsuitable.
  • (name of credit provider) failed to–
    • Make reasonable enquiries as to my client’s financial situation
    • Take reasonable steps to verify my client’s financial situation
    • Make reasonable enquiries as to my client’s needs and objectives
    • Adequately assess whether my client could meet the financial obligations under the loan without substantial hardship
    • Adequately assess whether the loan granted met my client’s requirements and objectives
  • My client’s loan is unjust under s. 76 of the NCC because: (address any of the list of factors included in s. 76 (See Unjustness) that are relevant to the case).
  • I attach (or I will send) copies of–
    • My client’s completed loan application
    • My client’s loan contract
    • A copy of the assessment provided by the (name of Credit Provider) under the NCCP Act (if applicable)
    • A copy of correspondence with (name of credit provider) in relation to this dispute;
    • Any supporting evidence to establish the client’s financial situation at the time of the loan being granted
  • My client is also in financial hardship: (insert details of client’s income, expenditure, assets, and debts).
  • My client’s situation now is: age, number of dependents, any illness or disability, employed, any other relevant factor.

Fair and reasonable resolution of the dispute requested

My client requests the following resolution of his/her/their dispute (Delete the options that are not applicable): Insert details of settlement sought.

Note: It may not always be a good idea to outline the desired resolution of the dispute until you have more evidence. You do not have to ask for a resolution at all. So you can either ask for a generic resolution such as:

  • The contract be varied and compensation paid to the client on the grounds that the loan is unsuitable under the NCCP; or
  • Determine the matter based on the principles of unjustness, responsible lending conduct and a repayment arrangement on the grounds of financial hardship.

Examples of possible resolutions

For example (for a credit card)

  • The debt is reduced to $2,000.
  • My client repays the debt at $50 per month.
  • No interest or fees to be charged.
  • The credit card is cancelled (usually already cancelled so delete if not applicable).
  • No default listing on my client’s credit report.

Or for an unjust home loan:

  • The house is put on the market.
  • My client has six months to exchange contracts for the sale of the home
  • All set up costs are refunded, including any interest charged on those costs.
  • All default fees and enforcement costs are refunded.