A lender approving credit you clearly couldn't afford isn't just bad luck — under Australian law, it's the lender's legal obligation to check first, and failing to do so can be challenged directly.
What the Law Actually Requires Before Credit Is Approved
Under Chapter 3 of the National Consumer Credit Protection Act 2009 (the National Credit Act), a credit licensee must, before entering into a credit contract or increasing a credit limit: make reasonable inquiries about your requirements and objectives for the credit, make reasonable inquiries about your financial situation, and take reasonable steps to verify that financial situation. The lender must then conclude the contract is "not unsuitable" for you — meaning, among other things, that you'll reasonably be able to meet the repayments without substantial hardship.
What "Reasonable Steps to Verify" Actually Means
This is the heart of most irresponsible lending disputes: did the lender genuinely check your actual income and expenses, or did it rely on a superficial or self-reported figure with no real verification? ASIC's Regulatory Guide 209 sets out its expectations for meeting these obligations, including scenarios covering self-employed borrowers, people consolidating existing debt, and other situations where a lender's inquiries need to go beyond a cursory check.
Your Right to See the Lender's Own Assessment
You can request a free copy of the lender's written suitability assessment for your credit contract, within 7 years of entering into it if you're dealing with the credit provider directly (or shorter timeframes if requesting from a credit assistance provider rather than the lender itself). This document is often the clearest evidence of whether a genuine assessment was actually carried out, or whether the process was superficial.
How to Challenge Irresponsible Lending
- Request a copy of the lender's written assessment for your specific credit contract or limit increase.
- Compare it against your actual financial situation at the time — did the assessment reflect your real income and expenses, or an unverified or unrealistic figure?
- Raise a formal complaint directly with the lender, citing the specific gap in their assessment.
- If unresolved, escalate to the Australian Financial Complaints Authority (AFCA), which applies its own established approach to remediating responsible lending breaches.
What This Means for You
- If a loan or credit limit feels like it was approved without a genuine look at your finances, request the lender's written assessment — you have a legal right to it.
- Compare the assessment against your documented income and expenses at the time the credit was approved or increased.
- Raise a specific, evidence-based complaint rather than a general "this loan is unaffordable" objection.
- AFCA has a defined approach to remediating these breaches, including recalculating what you'd actually owe if the credit had been properly assessed.
Related Kibbo Tools
Sources
- ASIC — Responsible lending. asic.gov.au
- Australian Financial Complaints Authority — The AFCA Approach to Responsible Lending. afca.org.au