Is responsible lending discriminatory?

In Lomax v National Australia Bank Ltd (Human Rights) [2014] VCAT 348 the Victorian Civil and Administrative Tribunal dismissed a claim by a 66 year old customer of NAB that NAB engaged in age discrimination when his finance proposals were rejected. The Tribunal particularly reviewed ASIC’s Regulatory Guide 209.

The customer had applied for an injunction against NAB taking enforcement action in respect of a business line of credit account which was in default. NAB had already given the customer temporary hardship relief after his business fell into financial difficulty.

The customer said that the bank’s lending guidelines for a home loan including for him to have a source of income to meet repayments was unreasonable given his age and his circumstances. He said that NAB ought to have allowed some flexibility in the application of its home loan guidelines and policies so as to take into account his particular circumstances which included his age, his professional experience and capacity, the circumstances which led to him experiencing financial problems and the merits of his proposals.

The customer had no assets, including superannuation other than a property he wanted to re-develop. His sole income was a Centrelink benefit.

The customer conceded in his oral evidence that no one employed by NAB said anything directly or indirectly about his age being a matter which led to the rejection of his proposals.

The Tribunal agreed with NAB that the fact that NAB acted to require compliance with the terms and conditions of the existing line of credit account cannot constitute a refusal to provide services or discrimination on the terms on which the service is provided.

The Tribunal made the following comments with respect to the bank’s requirement that the credit application for re-finance must evidence that the customer is currently employed:

“where the applicant did not have assets other than the Rae Street property or sources of income such as shares or superannuation, the only way for the applicant to prove a capacity to service the finance sought was by obtaining work. Where he had conceded the new business would have a lead time of at least four or six months, the discussions with NAB turned to the applicant obtaining employment elsewhere in order to be able to service the existing and further borrowings.

The applicant contends that a requirement for employment for a person such as him amounts to indirect discrimination because persons of retirement age tend not to be employed and have difficulty becoming employed, so the income sought by lenders cannot be produced.

I have reviewed the various versions of ASIC’s Regulatory Guide 209 applicable at relevant points of time. Consistent with the NCCP Act, the Guide discusses the enquiries a lender ought to make so it may undertake an assessment as to whether a proposed loan might be regarded as ‘not suitable’. A loan is not suitable where it does not meet the customer’s requirements and objectives and where the customer will be unable to meet payment obligations at all or only with substantial hardship.

It is apparent from the Guide and, appears to be accepted by the applicant, that there is an expectation of repayment of borrowings. The question raised by the NCCP Act and discussed in the Guide is whether the prospective borrower can show a source of repayment and whether repayment from that source will result in substantial hardship. In broad terms, there is a preference for repayment from income rather than assets.

As discussed by the applicant, ASIC has recognised that for retirees downsizing, bridging finance which cannot be serviced may not be unsuitable where the sale of a larger property will be the ultimate source of repayment. Reference is made to reverse mortgages which allow for borrowings and capitalised interest to be repaid on the sale of the borrower’s home on their death. The Guide also suggests that superannuation may be relied on as an income source in appropriate cases.

This material demonstrates that repayment of debt may come from a range of sources other than employment. Retirees and other older people may be able to demonstrate serviceability and so face no barrier to obtaining finance. Without comprehensive evidence about the range of circumstances faced by retirees and older people generally, it has not been demonstrated that there is indirect discrimination in imposing a requirement that income to repay debt be produced from employment where a borrower has no assets or other income source. In my view, the applicant’s approach fails to give sufficient weight to the fact that debt is repayable and that a responsible lender must be satisfied that there is a source of repayment. An absence of a repayment source is likely to lead to the rejection of finance proposals made by people of all ages.

Even if I were to be incorrect in this analysis, I am satisfied that such a requirement is reasonable.”

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