194 Federal Law Review Volume 46
The provision of credit to households is a two-edged sword though. When
used appropriately, credit can assist consumers to purchase goods and services or to
leverage the acquisition of assets for investment purposes. However, as the amount of
outstanding consumer credit continues to expand, concerns around the exposure of the
lending institutions, and more especially their borrowers, are intensifying.
concerning responsible lending ultimately compound at a household level,
household debt to disposable income now at record levels.
As debt levels grow,
households can find themselves in a position of increasing financial stress and can fall
into a debt spiral if they do not act quickly to regain control of their finances. In extreme
cases where debt is not managed appropriately, borrowers can end up in a position of
and can lose their personal assets, including the
family home and car. Given these significant risks, consumers of credit are afforded
protections under the National Consumer Credit Protection Act 2009 (Cth) (NCCP).
The NCCP includes, among its consumer credit protections, responsible lending
regimes that apply to all credit providers in Australia.
These regimes impose an
obligation on credit providers and credit assistance providers to ensure a loan is suitable
for the borrower (or more precisely, that it is not unsuitable).
The key factor that these
Reserve Bank of Australia (RBA), Chart Pack (August 2017) 9. See also Gill North, ‘Small
Amount Credit Contract Reforms in Australia: Household Survey Evidence and Analysis’
(2016) 27 Journal of Banking and Finance Law and Practice 203, 208.
See Philip Lowe, ‘Household Debt, Housing Prices and Resilience’ (Speech delivered at
Economic Society of Australia (QLD) Business Lunch, Brisbane, 4 May 2017); Gill North, ‘The
Australian House Party has been Glorious—But the Hangover May Be Severe: Reforms to
Mitigate Some of the Risks’ in Ron Levy et al (eds), New Directions for Law in Australia: Essays
in Contemporary Law Reform (ANU Press, 2017).
North, ‘Small Amount Credit Contract Reforms in Australia’, above n 2, 203.
Ibid 203; RBA, Statistical Tables: E2 Household Finances—Selected Ratios (21 December
See Commonwealth, Strategies for Reducing Reliance on High-cost, Short-term, Small Amount
Lending, Discussion Paper (April 2012) 3–4. See also Chris Connolly, Measuring Financial
Exclusion in Australia (Report, Centre for Social Impact, University of New South Wales, 2014)
5, 9; Kristy Muir, Axelle Marjolin and Sarah Adams, Eight Years on the Fringe: What Has It
Meant To Be Severely or Fully Financially Excluded in Australia? (Report, Centre for Social
Impact, University of New South Wales, 2015) 5.
Bankruptcy Act 1966 (Cth). See Australian Financial Security Authority, Non-Business Related
Causes of Personal Insolvencies 2016–17 <https://www.afsa.gov.au/statistics/causes-non-
business-related>. These statistics show that excessive use of credit is now the most common
non-business related cause of personal insolvencies in Australia. See also Paul Ali et al, ‘The
Incidence and Causes of Personal Bankruptcy in Australia’ (2016) 4 JASSA—Finsia Journal of
Applied Finance 27.
The responsible lending provisions are a sub-set of the various laws designed to protect
consumers of credit.
National Consumer Credit Protection Act 2009 (Cth) (‘NCCP’) pts 3.1–3.2. Section 8 of the NCCP
states that a person provides credit assistance to a consumer if, by dealing directly with the
consumer or the consumer’s agent in the course of, as part of, or incidentally to, a business
carried on in this jurisdiction by the person or another person, the person: (a) suggests that
the consumer apply for a particular credit contract with a particular credit provider; or (b)
suggests that the consumer apply for an increase to the credit limit of a particular credit
contract with a particular credit provider; or (c) suggests that the consumer remain in a
particular credit contract with a particular credit provider; or (d) assists the consumer to