There has been significant discussion in some circles about the case of ASIC v The Cash Store Pty Limited [2014] FCA 926.  This case dealt with a small amount lender which the court found did not comply with its responsible lending obligations.  But what did the court really say?

It is difficult to tell what the case is authority for because it was undefended, and involved a small amount lender who during the period of the investigation had not fully adjusted to the responsible lending obligations in the NCCP Act.

Our analysis comprises setting out a number of quotes from the judgement which provide food for thought.

Paragraph 42: ‘Assessing whether there is a real chance of a person being able to comply with his or her financial obligations under the contract requires, at the very least [our bolding] a sufficient understanding of the person’s income and expenditure’.  It is axiomatic that reasonable enquiries about a customer’s financial situation must include enquiries about the customer’s current income and living expenses.  The extent to which further information and additional enquiries may be needed will be a matter of degree in each particular case’.

Paragraph 22: In respect of what the expression in the NCCP Act ‘the consumer will be unable to comply with the consumer’s financial obligations under the contract, or could only comply with substantial hardship’ means the judge said “the expression ‘it is likely’ imports as a matter of ordinary meaning ‘a real chance or possibility’’.

At 28: ‘Reasonable enquiries about the consumer’s requirements and objectives in relation to [a] credit contract must be such enquiries as will be sufficient to enable the [licensee] to make an informed assessment as to whether the credit contract will meet the consumer’s requirements or objectives’.

At 45: ‘ASIC considered TCS to have made reasonable enquiries about the customer’s requirements and objectives if the file indicated the purpose for which the loan was sought and the customer’s stated purpose was specific enough to enable TCS reasonably to ascertain what the money was needed for.  ASIC…. viewed the description of ‘living expenses’ or ‘personal’ as insufficient’.

At 36: The court found that the following descriptions were not sufficient to understand the customer’s requirements and objectives –‘ personal, personal needs, living, living expenses, monthly expenses, monthly expenses – food, to pay bills and live until payday, bills and other, lives in share house/share expenses, shortfall/cash shortage, travel, entertainment, buy stuff for home, shopping, wedding, sister’s wedding, washing’.  ASIC’s approach was to accept ‘bills’ as a reasonable description if the amount was under $500.  The court held that the description ‘food, work shoes, doctor, insulin’ were sufficient.

At 48: The judge held that TCS had failed to take reasonable steps to verify the consumer’s financial information because TCS did not verify the customer’s income and rent or mortgage payments.

The case does little to help resolve the question of what are reasonable enquiries and verifications on any specific transaction.  We are left with a situation where the requirements are scalable.