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Responsible lending means asking reasonable questions

Tony is a solo dad, on a benefit. When Tony receives his income, and after his mortgage payment is debited from his account, he withdraws all the remaining funds and pays all his bills in cash.

To cover day to day living expenses, Tony approached a payday lender for a $200 loan. The lender assessed Tony’s income and calculated that he had discretionary income of $144 a week and could afford the $60 proposed loan repayment. Over a nine-month period Tony borrowed similar amounts 10 times, always repaying each loan without incident. From the payday lender’s perspective, Tony was a good customer.

However, Tony was slowly sliding further into debt and went to a budget adviser for help. When the budgeter assessed Tony’s income and expenses, he discovered Tony had a weekly budget deficit of $65. The budget adviser asked the lender for its lending assessment, but the lender refused to release it. On the information the budget adviser did have, he was concerned about responsible lending and, with the help of the budgeter, Tony referred his complaint to FSCL.



The lender said its assessment of Tony’s financial situation was commercially sensitive information, and did not accept it was personal information Tony was entitled to see. The lender was also satisfied it had met its responsible lending obligations, observing that Tony’s spending habit of withdrawing large amounts of cash, it difficult to assess whether Tony could afford to repay the loan without suffering substantial hardship.

The budget adviser disagreed, saying that Tony needed to see the lending assessment in order to determine whether or not the lending was responsible.

While the lender was satisfied that it had not done anything wrong, it asked us to find out what would resolve matters for Tony. We asked the budget adviser, and he advised Tony would accept:

  • his existing debt of $150 written off
  • a refund of all the interest and fees charged on all the loans, about $1,100
  • compensation for inconvenience.



We put the budget adviser’s proposed resolution to the lender, who agreed to all the terms, and asked us for our view of a reasonable amount as compensation for inconvenience.

We advised the lender that, from the information available to us, we were concerned that it may not have satisfied its responsible lending obligations. The lender appeared to have underestimated reasonable living costs and completely ignored some expenses, for example rates, from Tony’s budget. We considered Tony was likely entitled to the information about himself on which the lender had based its lending affordability assessment. However, the offer to write-off the existing debt and refund interest and fees, together with $250 compensation for inconvenience seemed reasonable.



The lender agreed to offer, and Tony accepted:

  • a write off of his existing debt, about $150
  • a refund of all the interest and fees charged on all the loans, about $1,100
  • $250 as compensation for inconvenience.


Insights for participants

To satisfy responsible lending obligations, a lender is obliged to delve a little deeper into a borrower’s estimated expenses. If a lender knows a person owns a house, the budget should reflect the usual costs incurred in home ownership, for example rates and insurance. Similarly, a lender with children will have additional costs, and a budget should reflect this. It is not enough for a lender to say that the borrower did not disclose the information, so the lender did not ask.