If you are a borrower struggling to meet loan commitments or an investor who has lost money through poor advice, you may have a claim for compensation against the bank or financial institution for failing to assess the suitability of the loan or investment product for your particular circumstances.
National Credit Act (“NCA”)
The NCA requires financial institutions to observe “customer best interest obligations”and to conduct a customer risk profile sensitivity analysis.
For borrowers, this means lenders and brokers should provide loans only when the customer can meet the repayments without substantial hardship, without selling their home, and the proposed loan meets their requirements and objectives.
For investors, investment organisations and banks must provide a comprehensive Statement of Advice that adequately considers the customer’s financial objectives and risk profile.
Compensation for Borrowers
In recent years, major banks failed to implement systems to meet their NCA obligations in connection with:
Assessment of loan affordability
Lenders who fail to take reasonable measures to verify your income and household expenditure don’t comply with their responsible lending obligations. In most cases a borrowers monthly household expenditure is determined by a tool known as a HEM (Household Expenditure Measure) which, at best, gives a guesstimate. Relief against interest payments and other charges as well as compensation for financial stress can be obtained from the lender where this has occurred.
Your financial circumstances
Apart from affordability, the lender is also required to determine the appropriateness of the loan or additional drawdown in the context of your requirements and objectives. A failure to provide such consideration may ground a claim for additional compensation from the bank.
In this context, your lawyer needs to carefully consider the circumstances in which the loan was taken out, details of your personal circumstances at that time and the nature of the loan facility that was offered i.e the purpose of the loan (e.g. investment property, holiday or other), amount of the loan, rate of interest, monthly repayments and its terms (e.g. interest only, term of loan etc).
Worthless credit insurance
Most banks actively sold credit insurance to borrowers which provided very little benefit to the customer notwithstanding their payment of ongoing monthly premiums. Compensation is available for the amounts paid.
Hardship, stress and inconvenience
The extent to which an inappropriate loan caused actual stress – in terms of your struggle to keep up payments – and other losses to you can also be the basis for compensation for example, if you sustained ill-health or lost income as a result.
Consumer and small business borrowers are entitled to relief against the effect of “unfair terms” in loan contracts including in relation to odorous penalty interests and other “default charges”.
Several major banks are in the course of making offers to their customers in relation to unaffordable loans granted in recent years. If you have been made such an offer you need legal advice about the settlement deed as well as the appropriateness of the amount that has been offered to you.
Compensation for investors
Financial products – or the banks that promote them – sometimes don’t live up to the promises made. If the fruits of years of your hard work or those of a financial guarantor have been put in peril by misleading advice or bank promotional practices, our lawyers can advise you through the disputation process to bring about a positive outcome.
The Australian Consumer Law, ASIC Act and Corporations Act give consumers and businesses, strong protection when customers have been misinformed and when investment products do not provide the intended results.
No adequate Statement of Advice
As the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry discovered, the failure to provide adequate and comprehensive Statements of Advice to investors in “financial products” – by banks, financial advisers and other entities – is widespread. This omission entitles an investor to a range of compensation relief.
No customer risk profile sensitivity analysis
The financial adviser is also required to determine the appropriateness of the investment product having regard to your personal situation. As the Royal Commission discovered, many advisers failed to adequately explain to customers all the risks that could bring the investment undone and that calls on margin loans that they were encouraged to take out,could mean the loss of their family home.
Conflict of interest
Another ground for seeking compensation is because the institution offered a product that paid a higher commission to it than other and often better, investments. Compensation is available in the circumstances especially where the adviser failed to compare the relative costs and benefits of several different investment opportunities.
If an adviser recommends transferring from one form of investment to another, the benefit of the change should be obvious and it should be fully explained to the customer. Often this did not occur and the investor was put into a new investment that was inferior to the original product. Compensation is available in the circumstances.
What Banking and Finance Disputes disputes we deal with?
Our Banking and Finance Disputes team is proficient in all types of disputes over financial services, including:
- Irresponsible and unaffordable loans;
- Failure to provide an adequate Statement of Advice when giving personal advice;
- Failure to observe “customer best interest obligations” or canvas the customers capacity to deal with financial risk;
- Conflict of interest advice;
- Substitution of financial products or insurance cover resulting in inferior customer benefits;
- Financial advisor performance & conduct issues;
- Misrepresentation re investment future performance – see example;
- Penalty interest demands – see example;
- Re-opening of loan due to unfair terms in loan documentation – see example;
- Mortgagee in possession valuation disputes – see example; and another;
- Disputes over margin loan facility calls;
- Disputes regarding structured financial products and derivatives – see example;
- Insolvency and bankruptcy claims;
- Financial Services Ombudsman submissions.
Our lawyers have experience in this field litigation on behalf of investors, guarantors and borrowers.
AFCA’s service is offered as an alternative to tribunals and courts to resolve complaints consumers and small businesses have with their financial firms. – Australian financial complaints authority
Why Choose QLD Business + Property Lawyers for your Banking and Financial Advice Dispute?
The significant advantage for our litigators is that they are part of a comprehensive business law practice which ensures they can rely on the professional experience of others.
Our litigation lawyers help business clients by assisting them through tough circumstances when a dispute arises due to day-to-day operations. Litigation should be a last resort and we will explore other resolution processes using mediation, arbitration, conciliation and other alternative forms of dispute resolution as a means of achieving a faster and cheaper outcome.
Please contact our office to see one of our lawyers in our Brisbane office if you need assistance with a banking litigation dispute or to arrange a consultation in one of our branch offices.