Big Brother to Squash Predatory Lending

The end of the road is nigh for any lender who now pushes credit onto vulnerable consumers. Even suggesting an unsuitable credit product to a potential customer may have serious ramifications, including revocation of the soon-to-be-essential Australian Credit Licence (ACL).

The new National Consumer Protection Bill 2009 aims to bring confidence and protection to consumers when seeking credit products. From 1 November 2009, it will be illegal to supply credit irresponsibly – that is, provide an unsuitable product or a product that exceeds an individual’s capacity to repay.

These laws will apply to all credit card providers and any brokers or intermediaries who suggest unsuitable products. The obligation for responsible lending applies to all licence holders at all stages of the credit process. There will be no capacity to pass the buck. For consumers, this will mean they can have more confidence when shopping for lending products across the board.

Each person will be individually assessed before a product can be suggested, and all fees and commissions must be disclosed before a decision can be made. High commissions on the infamous sub-prime mortgages in the US have highlighted the dire consequences of allowing the self interest of salesmen to fly under the radar in the process of selling credit products. By making these commissions and fees transparent it is hoped that consumers can make informed decisions, without being guided by unscrupulous lenders out for a quick buck.

On the flipside, government intervention can have unintended consequences. In fear of breaking the new laws, banks could go the other way and tighten lending controls to the extent that they leave some consumers in the lurch, despite being willing and able to repay loans. Newcomers to Australia particularly, may find themselves struggling to get credit as they wait to develop a history of regular income.

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