Given all the interest in the lending practices across the sector, we have launched a series of DFA video shows on the critical issues surrounding Responsible Lending.
In the series we will look at why responsible lending is so important (for households, industry players and the broader economy), what lessons we did – or should have learnt following the GFC, how changes are likely to play out ahead, and how advice for lending services compares with wealth advice.
Principal at DFA Professor Gill North will lead the shows. The first is an overview of the series and the key themes we will address.
Gill has written widely in this area, and you can access her work via SSRN or though Deakin University
Responsible Lending was a great tool used by the banks to make another $1b in profit for no real public benefit and definitely is a bad policy for the consumer.
Case 1.
Has a CBA client come looking for help, his story was:
Self employed sole trader.
Wife diagnosed with breast cancer.
He took 9 months off to care for her during treatment.
Had a CBA home loan and made all payment as required during her treatment period.
With wife recovering returned to work with deplete savings as these were used to maintain home loan payment.
Asked CBA to convert from P&I to interest only so he could rebuild his savings, asked for 3 months only.
CBA foreclosed on his home as under responsible lending he can no longer afford his home, today.
Past account conduct and ability to repay in the future are irrelevant according to Responsible Lending guidelines and I have had this confirmed by every lender I deal with.
Case 2.
Client is a truck operator and in the floods last year both of his trucks were caught between two bridges that had been washed away.
I handled getting his loan payments on all loans onto a payment holiday with payments on all loans being repaid at 150% of the monthly payment amount until arrears caught up and this is what was done.
All current lenders confirm account conduct as “excellent”.
Just been declined on a loan due to “poor conduct” during the floods.
Here’s my prediction those pushing “responsible lending” which from what I am experiencing is actually the exact opposite in practise as shown above will go through in a few years what HEM is going through now.
I suspect”responsible lending” as being used now will see several hundred thousand personal bankruptcies in Sydney & Melbourne as the housing market “adjustment” goes forward.