Lenders unfairly blamed for consumer irresponsibility

by Mackenzie McCarty11 Jun 2013

Broking business Honey Loans has published a statement one its website criticizing the way home loan affordability is decided in Australia.

“We are concerned for the Australian consumer. All too many people are out borrowing money from whoever will be prepared to offer them a loan. Frequently, there appears to be little thought given to how much the loan will cost over the full term or whether they can, in fact, afford the loan repayment.”

Rather than secure additional industry regulation, however, Honey Loans argues that borrowers should be afforded the ability to decide for themselves whether a loan is suitable – not lenders or brokers.

“Who is responsible for making sure that you do not borrow more than you can afford? You would think that this should reasonably be the borrower. However, the borrower bears no responsibility when it comes to deciding if they can afford a loan. The government has made lenders responsible for this assessment. Your broker and or lender need to question you as the borrower…Oddly enough, this is not a requirement in any other industry. It seems that when it comes to matters of finance, mature adults are treated as if they are primary school children that require a parent to review and approve their decisions.”

Honey Loans says it’s become ‘all too easy’ to blame lenders for making money available to clients who can’t afford to borrow elsewhere.

“The problem is really not about the lenders, rather, it is about lack of financial responsibility on behalf of the borrower…Where else would the responsibility for your actions as a consumer be borne by others?”

“Imagine going in to purchase a car and having the car yard assess your driving skills before selling your their vehicle - then, if you drive irresponsible[sic], blaming the car dealer for making the vehicle available to you before they tested your driving skills. Sounds ridiculous. However, this is effectively what happens in finance.”

“If you are in business and do not make sufficient provisions for the payment of tax, the government is not going to stand back and allow you to avoid your tax obligations because you ‘did not understand’ your responsibilities”

Honey Loans says consumers should be protected against ‘shonky’ operators and that this is where industry regulation comes in.

“There should be standards as far as how financial products are marketed and information that must be provided about a loan to prospective borrowers. There is nothing wrong with the lender performing an affordability assessment on the borrower. However, this is for the protection of the lender and their business. When it comes to the lenders being responsible for protecting the borrower from themselves, we feel that regulation has gone too far.”

COMMENTS

  • by Country Broker 11/06/2013 10:09:29 AM

    This is a good article , If brokers are doing what they are required to do under the NCCP , and take just reasonable steps in investigating a clients situation, clients capacity should be assessed , I have had a number of instances when it is obvious that the capacity is not there.
    I also agree the clients still need to take responsibility , it is just too easy for a borrower to "point the finger

  • by Randy in WA 11/06/2013 11:19:51 AM

    Great stuff Honey Loans!

    ...there's only so much 'validation' a lender can do - if all liabilities are disclosed by the borrower, then the serviceability checks etc will give a good indication of the borrowers ability to repay

    ...the only thing I'd say is the living allowance apportioned in the servicing calculators of most lenders are quite conservative ...these are generally based on the HEM index, but try living a reasonable lifestyle (as a couple with 2 kids) on $2704 per month, when electricity, gas & water alone can cost >$500 per month!

    ... changes to circumstances, undisclosed debts or lifestyle spending is not something a lender or broker can easily determine, and hence end responsibility should be held by the borrower (whilst recognising that industry legislation to prevent misleading borrowers is healthy for the professionalism of the industry)

  • by Brado 11/06/2013 11:33:55 AM

    Part of our Needs Analysis specifically asks how much the client can afford to repay without hardship ( based on repayments per week etc )... I think its SO important that the client still takes responsibility for what they are doing and what they are signing up for.