Consumer Credit and Responsible Lending

Since the introduction of significant reforms to the laws governing consumer credit in Australia, the Credit & Debt team has maintained a focus in its casework on the new responsible lending provisions.

The responsible lending provisions provide important protection for consumers. Previously, consumer advocates relied on the concept of "maladministration" to challenge credit provided to consumers.

The provisions relating to responsible lending place greater responsibility on lenders to ensure that the loan or credit provided to the consumer is appropriate, or not "unsuitable".

Case Study: Breach of responsible lending provisions

Laura (not her real name) came to RLC with a complaint about her credit provider, Citibank. In March 2011, Laura saw a TV ad for Citibank's offer of "zero interest on balances transferred," for new customers transferring their credit card debt to a Citibank card. Laura thought that this would be a good way to pay down her credit card debt, and so she applied for the card.

Laura received phone calls from Citibank customer service representatives, who advised her that her application had been approved and that she would receive the card in the mail.

Laura received the card and a letter saying she had been approved for a balance transfer of only $2,500 (not $6,500 as she had requested). Contrary to the advertisements, Laura was charged interest on this account. Laura contacted Citibank and received verbal confirmation that a 0% interest rate applied to this account. However despite requests, she received no written confirmation.

Laura wrote to Citibank setting out her concerns. Laura was told that she had not been granted the card for which she had applied, but rather a different card, which did not have the same features as the one she wanted. As Laura did not meet the income requirements for the card she had applied for, she had been automatically downgraded to a different card. A letter advising Laura of this had been sent, but Laura did not receive it until after she had activated the card.

We assisted Laura to make a further complaint to Citibank about their decision to automatically process Laura's application for one card as an application for another card, without her knowledge or consent. Citibank told us that their "Privacy Consent" form contained a clause that authorised them to do this. In agreeing to the terms and conditions of the Privacy Consent, Citibank argued that Laura had consented to this.

Citibank's actions appeared to us to be a breach of the responsible lending provisions of the National Consumer Credit Protection Act. Citibank appeared to have completely failed to assess whether the card granted was suitable for Laura's purposes, having regard to Laura's requirements, objectives and financial situation.

We assisted Laura to make a complaint to the Financial Services Ombudsman. We managed to negotiate a satisfactory outcome for Laura. However, it took over a year to resolve this complaint, demonstrating how hard it can be for consumers to fight back against their financial services providers.