Financial abuse is a huge issue in Australia - and brokers could be unintentionally enabling the perpetrators, say Acuity Funding managing director, Ranjit Thambyrajah and Australian Bankers’ Association (ABA) CEO, Steven Münchenberg.
According to the ABA, studies suggest that approximately 3-7% of older people over the age of 65 will experience abuse from someone with whom they have a relationship of trust, with financial abuse identified as the fastest growing type of abuse. While the elderly are not the only borrowers at risk (those with a disability or mental health issue are also prime targets), they are considered the most likely target.
“Unfortunately,” says Münchenberg, “a common cause of financial abuse is where an adult child has a false sense of entitlement to their parents’ money or property. Our documents call out instances where a vulnerable person is pressured to take out a loan or a product so the abuser can personally benefit without taking on the risk. For example, having a vulnerable person take out a mortgage, a shared equity loan, a reverse mortgage, or invest in ‘too good to be true’ investments.”
“On reverse mortgages specifically,” says Münchenberg, “we understand that, since the GFC, the supply-chain for these products has been reduced to the point where very few providers remain active. Not many of our members offer these.”
Acuity Funding is one broking group which refuses to offer reverse mortgages, which Thambyrajah says can be ‘particularly tricky’ when it comes to clients taking financial advantage of vulnerable individuals.
“Brokers have to consider the end borrower when assessing or submitting a loan to a lender. Acuity Funding has made it a policy not to be involved in reverse mortgages for the specific reason that this facility is often used to assist others and not the borrower.”
He says his company has on multiple occasions refused to act for a client where the cash injection into a project is from their parents.
“We have experienced many occasions when a client comes to us to try and rescue their parents’ property after the damage is done and there is very little that can be done to assist. In most instances, the damage is done and there is no practical way to save the injured party except to explain to the elderly or the injured party that they will have to sell their asset and downsize.”
However, while Thambyrajah believes legislation must be developed to protect vulnerable individuals from financial abuse, he says law-makers need to be sure to keep the regulations workable for both brokers and borrowers.
“As with any form of legislation, there needs to be care given to ensure that the legislation is not too punitive and unworkable. It is also important that current and future legislation only protects those who really need protection and not those who wish to avoid their financial responsibilities when they default on their financial obligations.”