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BFCSA: Gadens and Jon Denovan 2013 warns LENDERS re UNJUST bank contracts

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2013 Credit Conference Report

Jon Denovan, Partner, Sydney



The 23rd annual Credit Law Conference was held in October 2013 in the Gold Coast. Some key outcomes are reported in this article.

First FOS case on responsible lending

What happens if a lender makes an unsuitable loan either because responsible lending enquiries were not made or because of an incorrect assessment?  An unsuitable loan will usually be considered unjust (aka unconscionable). When a contract is unjust, a court (or in this case a tribunal like FOS) will try to restore the parties to the position they would have been in if the unjust contract had not been entered. The first FOS case dealing with responsible lending involved the hire of goods. The lessor had to refund a large proportion of the rental to the hirer, and the hirer was able to keep the goods. When lenders assess borderline unsuitable loans, they should consider what would happen if the parties were restored to the position they would have been in if the loan had never been made.

Keeping records

A condition of every credit licence is that the licensee must keep records of all material documents that form the basis of the credit assessment. Licensees who have credit representatives must keep these records and not rely on their credit representatives to do so.

Living in a low capital appreciation environment  (Denovan discussing Buffer lending)


Depending who you believe, the seemingly perpetual capital appreciation of Australian house prices may be about to slow down. In a low capital appreciation market it might be hard to justify ‘tight financings’ where a loan is made to give a borrower time to get their affairs in order and sell the property. Often these loans have worked out because capital appreciation has saved the day. Lenders should consider what will happen if there is little or no capital appreciation.

We note that Denovan still, uses polite language for criminal intent:  a fraudulent loan is mentioned as "unsuitable," and with Maladministration in Lending he speaks of "incorrect assessment."    Nice one Jon. We note its Gadens that do the lion's share of preparation of contracts for the intended victims.  This email address is being protected from spambots. You need JavaScript enabled to view it.

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Guest Friday, 22 January 2021