Bad credit lending: the protections that still apply
A poor credit record does not switch the law off. A licensed lender still must not enter into a credit contract that is unsuitable for you, and ASIC’s guidance treats past repayment trouble as a reason for the lender to make more inquiries about your situation.
General information, not financial advice. A guide to the borrowing rules for people with a poor credit record, published by Dotto from the official sources listed at the foot of each page. The official places to check are ASIC’s Moneysmart and, for free help with debt, the National Debt Helpline.
Five guides
Each guide below sets out what the law and the regulators require of a lender, from the borrower’s side.
- Unsuitable credit
The test every licensed lender has to apply, and the point where a credit history enters it.
- High-cost loans and their warnings
The kinds of credit ASIC groups as higher-cost, and the extra rules the law adds to them.
- Consumer leases
Hiring goods with no right to buy them, and the protections that still reach the person paying.
- Signs of a predatory lender
What the regulators tell borrowers to watch for, with the rule that sits behind each sign.
- Where to get free help
Financial counsellors, the complaints authority and free legal advice, sorted by what has gone wrong.
More questions, the same test
A lender does look at your history. ASIC’s guide to responsible lending quotes the Federal Court’s view that a borrower’s credit history, and whether they have generally kept up with similar obligations, is relevant to whether they can meet a new loan’s obligations. That history may show trouble, past or present, in meeting obligations on other credit. Where it does, ASIC says the lender should ask more, to understand the difficulty and how likely it is to repeat under the new loan.
What the record does not change is the test. The National Credit Act prescribes one test for unsuitability. If it is met, the lender must assess the product as unsuitable and must not enter into it with you, suggest it, or help you apply for it. Moneysmart puts the same rule plainly: a lender must turn a loan down when its assessment shows the loan could cause hardship, however confident the borrower feels about repaying.
The law cuts the other way too. ASIC says the obligations should not, on their own, mean that someone who has had trouble repaying in the past cannot get an appropriate loan. And Moneysmart adds a caution about lenders that advertise to people with bad credit or low income: they may charge high interest and fees, and borrowing from them could leave you worse off.
Where these rules reach
Credit law here is mostly national. ASIC says the responsible lending obligations apply to credit regulated under the consumer credit regime, which it describes as credit to individuals and strata corporations for personal, domestic and household purposes, or to buy or improve residential investment property. That takes in home loans, personal loans, credit cards, small and medium amount credit contracts and consumer leases, among others.
ASIC’s licensing guide says the National Credit Code does not apply to credit given, or goods hired, wholly or predominantly for business purposes, or for investment other than in residential property. The Code’s own words for that investment are narrower: it covers credit “to purchase, renovate or improve residential property for investment purposes”, or to refinance such credit . The guides here describe the consumer side of that line.
If repayments are already hard
Moneysmart says a lender must consider a borrower for financial hardship assistance once they ask, and that a lender who refuses must give reasons. A financial counsellor can help with the request, at no cost. Where to get free help sorts the free services by the problem in front of you.