Released October 1st 2007.
Predatory Lending has become a huge issue following the pressures in the sub-prime lending markets both offshore and in Australia over the past 2-3 months.
- Predatory lending exists in Australia and is targeted at specific customer segments
- Low income earners and females are targeted by some for predatory behaviour
- Leading indicators of predatory lending include:
- Lending to consumers with poor credit histories
- Excessively high set up costs
- Excessive advice fees
- Pressure to sign documents without proper explanation
- High ongoing interest rates
- False categorisation as a business or investment to avoid Consumer Credit Code
- Reliance on assets rather than income to meet loan repayments
- Embedded conditional fees which are not transparent
- Presence of an intermediary such as a mortgage broker
- Consumers advised to make false declarations on application forms (ie overstating income)
- Swift enforcement action upon default
- Pressure to refinance – “consolidate loans”
NCS Comment
With the experience of easy credit over the past few years, and the apparent tightening of conditions in the market, we are seeing some borrowers who are stretched in making their repayments. There is also anecdotal evidence of an increase in forced sales (self and mortgagee sales) as a result of borrowers overcommitting themselves.
At the end of the day, individual customers must take responsibility for their own actions, and they must consider long and hard the ramifications of taking on that larger borrowing when it comes time to sign the document.
Andrew Nicholls – Director -NCS-Nicholls Chartered Accountants
If interested in learning more about this update please contact me today!
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