RESPONSIBLE LENDING LAWS: ESSENTIAL DEVELOPMENT OR OVERREACTION?

This article considers the recent National Consumer Credit Protection Bill 2009, which will impose responsible lending obligations on all credit providers and most intermediaries who assist in the provision of credit to consumers. This article argues that the introduction of these laws is a necessary development, as irresponsible lending is a current market failure that has led to harm, both to consumers and to the economy. Current consumer protection laws are inadequate to prevent irresponsible lending or to provide redress for consumers who are victims of such lending. Alternative methods of consumer protection, such as greater disclosure requirements, consumer education or counselling initiatives and lender self-regulation, have also proven ineffectual. The proposed legislation, containing an explicit, ex-ante requirement to assess suitability prior to approving credit, is an appropriate and necessary form of regulation. However, the implementation of the legislation must find an appropriate balance between a number of factors, including protecting consumers while still allowing safe access to credit. This is a difficult task, but is essential if the legislation is to be fully effective as a consumer protection instrument.


INTRODUCTION
'When you gave me that money, you said I wouldn't have to repay it 'til the future. This isn't the future, it's the lousy stinking now!' 1 A lack of responsible lending in the Australian residential mortgage market has led to increased levels of consumer financial distress and over-indebtedness, and to negative repercussions for the Australian economy. This article will argue that the problem of irresponsible lending has led to a clear market failure; one which current laws are not capable of correcting. Therefore, the proposed Commonwealth legislation, the National Consumer Credit Protection Bill 2009 (NCCP Bill), introduced as part of a radical overhaul of Australia's consumer protection laws, is both a timely and necessary response to the problem of irresponsible lending. Appropriately implemented, the proposed legislation should be effective in redressing the identified market failure, increasing consumer protection and facilitating a competitive residential mortgage market.
Access to credit can be of great benefit to consumers. Consumer credit can be considered 'the lubricant of economic life', 2 and as 'one method of reducing income inequality and poverty'. 3 Access to mortgage credit permits the purchase of homes, which is not only a vital component in the accumulation of wealth, 4 but also an invaluable source of comfort and security for individuals and families. However, accessing mortgage credit can be a dangerous and risky process when the mortgage market harbours unscrupulous lenders who lend irresponsibly, particularly where these lenders explicitly target and exploit vulnerable, disadvantaged or low-income consumers.
The devastating effects of irresponsible lending have become increasingly visible during recent years in many consumer credit markets. Although not all affected to the same extent, the credit markets in Australia, the United States of America (US) and the United Kingdom (UK) have all experienced negative repercussions. While historically it has not been in the best business interests of a lender to engage in poor lending practices, a number of recent changes to the consumer credit market have created a slackening of lending standards, and a correlated rise in irresponsible lending. The greater number of lenders and mortgage brokers operating in the market has led to an increase in the number and variety of credit products available to consumers. 5 These products include 'subprime' or 'non-conforming' loans, which are made to borrowers who cannot obtain loans from traditional lenders, and 'low-doc' or 'no-doc' loans, which 'do not require as rigorous proof of creditworthiness'. 6 There has also been an increase in the number of lenders prepared to engage in 'pure asset' or 'asset-based' lending, where lenders grant loans based solely on the value of the borrower's security, without regard to his or her income or ability to make repayments. These practices are not inherently harmful; however, they have the potential to lead to lax lending practices, and they have opened the door for unscrupulous lenders to engage in irresponsible and predatory lending practices.
But what does it mean to lend responsibly? The term 'irresponsible lending' can be defined to cover a wide range of predatory lending practices, including not only 'affordability and the likelihood of repayment', but also 'advertising and marketing; selling techniques; product design; use of credit scoring techniques, appropriateness of credit to borrower; sale of associated products; and account management'. 7 However, the NCCP Bill focuses on two key aspects of responsible lending: the appropriateness of the loan to the borrower, and the borrower's ability to service and repay the loan. It is these two key aspects that will define 'responsible lending' for the purposes of this TUFFIN (2009) 282 article. Consideration of responsible lending issues will also be confined to the context of residential mortgages, although the NCCP Bill applies more widely than this. 8 Despite the existence of legislation such as the Uniform Consumer Credit Code (UCCC) and the development of the general law to include doctrines such as unconscionable conduct and economic duress, there is not currently any obligation for lenders to lend responsibly. Alternative methods used to address irresponsible lending, such as stricter disclosure requirements or consumer financial counselling, have not been sufficiently effective in preventing consumer harm. However, it is now a time of rapid and dramatic change for Australia's consumer laws. On 2 October 2008, the Council of Australian Governments agreed that responsibility for the regulation of credit should be transferred to the Australian government, 9 and agreed to a two-phase implementation plan. 10 The NCCP Bill was introduced into Parliament on 25 June 2009 as part of the first phase of this plan. The UCCC is to be re-enacted as the National Credit Code (NCC), and is contained in schedule 1 to the NCCP Bill.
Part one of this article will provide an outline of the credit market in Australia, will define irresponsible lending as a form of predatory lending, and will focus closely on the impact of irresponsible lending on vulnerable and disadvantaged consumers. Part Two will look at the current law and its shortcomings in protecting consumers from irresponsible lending practices, as well as consider alternatives to regulation, such as more stringent disclosure requirements or consumer education initiatives. Part Three will outline the responsible lending obligations contained in the NCCP Bill. The form of this regulation will be analysed, as well as its effectiveness as a consumer protection instrument. A brief summary of findings and recommendations will follow.

II IRRESPONSIBLE LENDING: A PREDATORY LENDING PRACTICE
A

The Housing Finance Market in Australia -An Overview
It is a time of contradictory trends in the Australian housing finance market. There has been unprecedented growth in household debt over the past 30 years for many developed countries. 11 This occurred in Australia particularly in the 1990s, where lower interest rates, low unemployment, increasing income and wealth, and the emergence of non-bank lenders meant 'households were able to afford higher levels of debt than before'. 12 This has meant that 'over the last 18 years, the total amount of debt owed by Australian households rose almost six-fold.' 13 However, more recently, the global economic downturn has caused some households to be more cautious in taking on debt. 14 8 See further: ss 5 and 6 of the National Credit Code; sch 1 to the National Consumer Credit Protection Bill 2009. 9 As recommended by the Productivity Commission: Commonwealth 12 Ibid. 13 Ibid. 14 Ibid 37. Broadly categorised, the lending institutions in Australia can be divided into Authorised Deposit-taking Institutions (ADIs) and non-deposit taking institutions. ADIs are entities authorised under the Banking Act 1959 (Cth) (Banking Act), and include banks, building societies and credit unions. ADIs are also regulated by the Australian Prudential Regulation Authority (APRA). Non-deposit taking institutions are also known as 'non-bank lenders' or 'non-traditional lenders'. They are less strictly regulated than ADIs, as they are not regulated by APRA, and include all other lending institutions not authorised under the Banking Act. The generic term used to refer to all of these entities will be 'lender' or 'credit provider'. 2

Changes in the Housing Finance Market
A number of 'significant structural changes' have taken place in the Australian housing finance market over the past decade. 15 There has been an 'easing of credit standards', which has meant that many borrowers who were previously ineligible were able to obtain housing loans, and that many other borrowers were able to borrow larger amounts than they otherwise might have. 16 The market has also seen an emergence of non-traditional lenders over the past decade. 17 These non-traditional lenders are more likely to engage in lax lending practices, such as asset-based lending, or to offer nonconforming loans, which are 'the closest equivalent to the sub-prime market in the United States'. 18 There has also been an increase in securitisation; a practice that is often associated with subprime lending, and which is discussed further below. 3

Recent Economic Downturn
The global economic crisis has had a significant effect on the Australian housing finance market. As a result of the downturn, some households 'are taking a more conservative approach to their finances and…have increased savings and reduced their appetite for new borrowing'. 19 This has seen households become more concerned with paying back debt and no longer so willing to withdraw equity from their homes. 20 While this behaviour has created a substantial slowdown in the growth of household credit, the slowdown has been 'less marked' for housing credit than for other types of credit 21 and housing credit has continued to 'grow at a reasonable pace'. 22 Additionally, in recent months, there has been a slight increase in new loan approvals as a result of lower interest rates and the government's first home buyers' grant. 23 The Australian housing finance market has not been affected by the financial crisis to as large an extent as the markets of other countries. It has been acknowledged that part of the reason for this is that Australia 'did not see the very marked decline in mortgage 15 Reserve Bank of Australia, Financial Stability Review (2009) 53. 16 Australian Bureau of Statistics, above n 11, 35.

17
Reserve Bank of Australia, above n 15, 53. 18 Ibid 18. 19 Ibid 33. 20 Ibid 50-1. 21 Ibid 52. 22 Ibid 47. 23 Ibid 52. Unsurprisingly, arrears rates are higher for low-doc and non-conforming loans. The arrears rate for prime low-doc loans was 1.2% in June 2008, which was more than double the arrears rate for prime full-doc loans. 29 In comparison, the arrears rate for non-conforming loans was much higher, at 8.5%. 30 The arrears rate for securitised lowdoc loans has also 'increased noticeably over the past year', 31 as has the rate for nonconforming loans, which has 'increased by more than 3 percentage points over the past year'. 32 Rates of arrears also highlight the differences in lending standards across different types of lenders. The arrears rate of full-doc loans originated by non-bank lenders 'is higher and has increased by more than that for equivalent loans originated by banks and other ADIs', 33 indicating that customers of non-banks may be more likely to experience difficulty in financing their loans.

B Predatory Lending Practices
Justin Malbon has described the practice of predatory lending as 'an enduring social scourge' 34 that is 'invariably the symptom of policy failures rather than the root cause of poverty and indebtedness'. 35 Although difficult to define, predatory lending has been described as 'a catalogue of onerous lending practices, which are often targeted at vulnerable populations and result in devastating personal losses, including bankruptcy, 24 Ibid 50. 25 Ibid 33. 26 Ibid 52. 1

Defining Irresponsible Lending as a Predatory Lending Practice
Where a lender does not have due regard to the appropriateness of a loan to the borrower's needs, or to the ability of the borrower to finance the loan, or where the lender maliciously and purposefully targets those consumers with little income who are willing to risk their homes to gain finance, lending is both irresponsible and predatory. Irresponsible lending can occur when a loan is sought initially, or when a lender pressures a borrower to refinance where it is unnecessary or beyond the consumer's means.
There are a number of lending practices that are generally associated with irresponsible lending; the most common being asset-based lending, 'churning' and 'equity stripping'. There has also been a rise in particular loan types that have arguably encouraged an increase in irresponsible lending; the most common being low-doc loans and subprime or 'non-conforming' loans. Any attempt to create policy responses to erase irresponsible lending must first begin with an understanding of these factors, so as to appreciate the causes of, and contributors to, the problem of irresponsible lending. 2

Asset-based Lending
Asset-based lending occurs when a lender relies on the value of a borrower's assets, rather than his or her income, in granting a loan. 37 [128]. 39 Ibid 19. 40 Ibid. 41 Ibid 18. Asset-based lending can also lead to other abusive lending practices, such as 'loan flipping' or 'churning', which occurs when homeowners default on repayments and the lender offers to refinance the mortgage in order to 'help' the borrower avoid foreclosure. The lender may persuade the homeowner to refinance their mortgage in this manner repeatedly over short periods of time, up to three or four times a year. 44 Due to prepayment penalties and 'refinancing' charges, the borrowers end up owing higher total principal and interest to the lender. 45 Loan flipping or churning therefore results in 'equity stripping', where the owner's home equity disappears and the amount owed under the loan increases. 46 3

Low-doc and No-doc Loans
A recent development in the mortgage market is the emergence of what are termed 'low-doc' or 'no-doc' loans. Low-doc loans 'do not require as rigorous proof of creditworthiness', 47 as they were developed primarily as a valuable tool for consumers on irregular incomes who cannot usually access traditional housing loans due to difficulties in stating their income. They may also be used by consumers who, for various reasons, do not wish to disclose their income. However, the lack of verification of income has led to concerns that low-doc loans may be abused by people who 'overstate their income to obtain a larger loan'. 48 Additionally, low-doc loan applications may not disclose the purpose of the loan, which can lead to inappropriate and unsuitable loans being granted. 49 Low-doc lending is therefore linked to riskier lending practices, and to predatory and irresponsible lending. 50 4

Subprime and Non-conforming Loans
Subprime loans, as they are known in the US, are termed 'non-conforming' loans in Australia. A distinction must be drawn between subprime lending and irresponsible lending, as, 'in the overwhelming percentage of cases, predatory loans are a subset of subprime loans'. 51 The term 'subprime' is used simply to refer to loans that are not 'prime', as they are loans made to consumers who would generally not qualify for traditional home loans. Subprime loans have a number of common features, such as low-interest 'honeymoon' periods, followed by very high interest rates for the 42 Engel and McCoy, 'A Tale of Three Markets', above n 36, 1262. 43 Ibid. 44 Ibid 1263. 45 Ibid. 46 Ibid. remainder of the loan, high loan-to-value ratios, and repayments that are a significant proportion of the borrower's income. 52 These loans are also very often 'securitised'. Securitisation is a process where illiquid assets are converted into tradeable securities, 53 which essentially means that the lender who has provided the loan is able to sell the mortgage and therefore the risk of default on to another entity. Hence it has been argued that, especially in the US, the process of securitisation 'facilitates predatory lending', 54 as it has 'encouraged some US mortgage brokers (and originators) to engage in careless and, in some cases, improper conduct in their dealings with borrowers'. 55 While securitisation has helped many consumers to obtain loans who otherwise might not have been able to access finance, it has also 'helped to spawn predatory lending and has impeded the ability of borrowers to obtain meaningful relief from abusive loans'. 56 5

Brokers and Intermediaries
Many of these forms of lending occur through intermediaries such as brokers, who negotiate with and attract clients on behalf of lenders, usually in exchange for a commission. There have been many reports of brokers falsifying information on loan applications, particularly low-doc applications, in order to have the loans approved and receive their commission. 57 Problems involving brokers and other intermediaries have been compounded by the lack of redress available to consumers who have fallen victim to unscrupulous brokers, as brokers are treated in law as agents of the borrower. 58 Therefore, the lender will generally not be held responsible for any unfair conduct by the broker, and the borrower will not be able to rely on the broker's conduct as a defence to any action brought against them by the lender. 59 Under the NCCP Bill, intermediaries are known as 'credit assistants', and are subject to very similar responsible lending obligations as credit providers. This is a desirable development that should result in responsibility for unfair conduct being attributed to the appropriate entity. Brokers' obligations under the NCCP Bill are discussed further in part three.

Disadvantaged and Vulnerable Consumers
Understanding the causes of financial vulnerability or disadvantage and the experiences of those consumers who are disproportionately affected by predatory lending is vital in the development of effective and efficient policy responses.

Defining Vulnerable and Disadvantaged
While almost any consumer can fall victim to predatory lending practices, some consumers are more vulnerable than others. The Productivity Commission defines a disadvantaged consumer as 'a person whose ongoing attributes or circumstances, such as poor education and low income, cause a continuing susceptibility to detriment'. 61 Disadvantage is 'typically persistent and hard to change'. 62 In contrast, vulnerability is described as 'a broader term relating to a particular susceptibility of consumers to detriment based on both their personal characteristics…and the specific context in which they find themselves'. 63 However, as Justin Malbon notes, 'there is no clear and simple way of knowing who is financially vulnerable'. 64 Financial vulnerability is not limited to the poor, and can be created by a number of circumstances, including 'a borrower's lack of capacity to respond to a job loss, an injury or sickness…[or] addiction to alcohol, drugs or gambling'. 65 Financial vulnerability may be either 'temporary or enduring' and may affect some members of the community more than others, as a result of their 'geographical location, race, age or marital status'. 66 2

Financial Exclusion and Consumer Over-indebtedness
An important aspect of understanding the effect of policy decisions on vulnerable and disadvantaged consumers is recognising the effect that financial exclusion can have on this group of consumers. Denial of credit to these consumers can, in some circumstances, be just as harmful as the granting of unsuitable credit. The failure of mainstream financial institutions to lend to people on low incomes exposes these consumers to high cost lending, 67 and 'exacerbates over-indebtedness and financial exclusion'. 68 Consequently, any proposed regulation to address irresponsible lending must ensure that it also addresses the inherent tension between tightening lending standards and allowing fair access to credit for vulnerable or disadvantaged consumers. This is not an easy task; as Iain Ramsay observes, 'facilitation of access may conflict with responsible lending policies'. 69 A further tension that responsible lending legislation must address is between the protection the legislation may provide for some consumers and 'the costs that may be imposed on other consumers through restrictions on choice, price and/or the entry of new suppliers'. 70

D Conclusion
Irresponsible lending is a predatory lending practice that has been the result of a combination of recent market factors, including an increase in the availability of loan products such as non-conforming, low-doc or asset-based loans. The effects of irresponsible lending may be felt most acutely by vulnerable or disadvantaged consumers who are not able to protect themselves; these consumers must be protected, but must not be subject to financial exclusion. Striking a balance between these competing policy objectives is not a simple task, and is examined further in part three. Part two, however, considers whether current Australian law is capable of protecting consumers from irresponsible lending. Part Two also considers alternative forms of consumer protection, and whether the introduction of additional regulation is justified in these circumstances.

III IS REGULATION TO ADDRESS IRRESPONSIBLE LENDING WARRANTED?
A

The Current Law
A number of statutes govern the provision of credit in Australia, most notably the UCCC, and, at a state level, the Contracts Review Act 1980 (NSW) (CRA). Equitable doctrines, including unconscionable conduct, undue influence and economic duress, have also developed to protect consumers and combat predatory lending. However, attempts to redress irresponsible lending practices using these laws are rarely successful, and, as the relevant case law demonstrates, modern lending practices have meant that claims are increasingly difficult to prove. 1

Uniform Consumer Credit Code
The provision of credit to consumers is ostensibly governed nationally by the UCCC. 71 Under s 6(1), the UCCC applies only to natural persons who are seeking credit 'wholly or predominantly for personal, domestic or household purposes'. Section 70(1) gives the court the power to reopen 'unjust' transactions. 'Unjust' is defined in s 70(7) as including 'unconscionable, harsh or oppressive'. In deciding to reopen a transaction, the court must have regard to the public interest and the factors listed in s 70(2). Listed as part of these factors is s 70(2)(l), which allows the court to consider 'whether at the time the contract, mortgage or guarantee was entered into or changed, the credit provider knew, or could have ascertained by reasonable inquiry of the debtor at the time, that the debtor could not pay in accordance with its terms or not without substantial hardship'.
This section appears to offer consumers some protection from irresponsible lending. However, the second reading speech introducing the UCCC outlines the manner in which this provision was intended to be interpreted, and indeed the way it has been interpreted in the time since. That is: The Consumer Credit Code … [is not] intended to place obstacles in the way of lenders giving credit to borrowers who make it clear from the outset that they will have 71 The object of the UCCC was to achieve uniformity throughout Australia by each jurisdiction enacting a law stating that the Consumer Credit Code of Queensland is the law of that State or Territory. However, since the introduction of the UCCC in 1996, many States have independently altered their Codes, meaning that the Code is no longer entirely uniform.

TUFFIN
(2009) 290 difficulties repaying their loan but nevertheless want to take on the obligation because of the lifestyle they wish to pursue … It is intended to deal with those lenders who consciously lend without making proper inquiries into the debtor's ability to pay rather than those lenders and borrowers who have gone down this path and made a conscious decision based on the best information available. 72 This explanation makes it clear that where a debtor has made a 'real and conscious choice to assume the risk of non-payment', the court will not reopen the transaction. 73 The difficulty with this interpretation is that it assumes two things: firstly, that consumers are appropriately informed as to the risks they take on; secondly, that consumers have a real choice to take on these risks. In many situations, consumers are not able to understand the terms on which they are accepting credit, and will not have a choice other than to obtain finance that is unsuitable or unaffordable, because they cannot, or believe they cannot, successfully apply for traditional finance elsewhere. 74 This interpretation also demonstrates the requirement for procedural injustice, rather than substantive injustice, to be present before relief can be granted. This means that individual circumstances must be examined, which 'reduces the potential for the development of precedent and widespread change in business practice'. 75 2

Contracts Review Act
Section 70 of the UCCC was modelled in part on the CRA, which, under s 7, allows the court to make a number of orders, including voiding or varying a contract, where it is found to be 'unjust'. 'Unjust' has the same meaning as under the UCCC. 76 Section 9 of the Act provides the factors to which the court must have regard in making this decision.
There is no direct equivalent of s 70(2)(l) in the CRA, although s 9(2)(f) allows the court to have regard to 'the relative economic circumstances, educational background and literacy of … (i) the parties to the contract'. 3

Unconscionable Conduct
Under statute, unconscionable conduct in relation to consumer mortgages was originally prohibited by the The equitable doctrine of unconscionable conduct in its modern formulation was outlined in the case of Commercial Bank of Australia v Amadio 79 (Amadio). Deane J stated that the doctrine operates where one party to a transaction is under a special disability in dealing with the other party, such that there is an absence of 'any reasonable degree of equality between them'. 80 This disability must be 'sufficiently evident' to the stronger party to make it 'prima facie unfair or unconscientious' for the stronger party to accept the weaker party's consent to the transaction. 81 Where these circumstances exist, an onus is placed on the stronger party to show that the transaction was 'fair, just and reasonable '. 82 This doctrine creates a number of problems for borrowers who are victims of irresponsible lending, but who do not have a demonstrable special disadvantage of the type considered by the case law to be sufficient, 83 or who cannot prove actual or constructive knowledge by the lender of a disadvantage. 84 The situation is exacerbated where the borrower has arranged a loan through a broker, because, as discussed above, the broker's knowledge cannot be imputed to the lender. 85 4

Undue Influence
Undue influence is an equitable doctrine concerned with the relationship of influence that a third party may have over one party to a contract, such that the consent of the weaker party was not free, voluntary and independent. 86 The standard of knowledge required by the stronger party of the third party's influence is not yet settled, 87 although it has been suggested that actual notice will be required, as opposed to mere constructive notice. 88 If this proves correct, modern lending practices, especially where a broker is involved, will make this standard very difficult to prove. It therefore appears that, subsequent to a determination of asset-based lending, the court may be more likely to grant relief under both the statutory reopening provisions and the equitable doctrines. However, in the absence of this finding, a lacuna is created in which borrowers who do not have the requisite disadvantage to qualify under the Amadio principle, or whose disadvantage has not sufficiently come to the attention of the lender, perhaps due to the involvement of an intermediary, are left with no avenue of redress. This is illustrated by the very recent case of Perpetual Trustees Victoria Ltd v Longobardi, 109 in which it was held that, in the absence of asset-based lending, no relief could be granted under the CRA or the ASIC Act, despite a multitude of factors that, by the judge's own admission, 'make the loan agreement and mortgage subjectively harsh or unfair'. 110 The counter-intuitive outcome of this case exemplifies the need for a simpler and more widely available avenue of redress for borrowers in these situations.

Alternatives to Regulation
Interference in the market through regulation is 'viewed by many as a blunt instrument that should be used judiciously and cautiously'. 111 Therefore, before the regulation can be justified, it must be established that alternative methods that are less extreme than market regulation are inadequate to address the market failure created by irresponsible lending. The most commonly encountered alternatives are lender self-regulation, consumer disclosure requirements, consumer education, and the extension of unfair contract terms legislation to consumer credit. 1

Lender Self-regulation
In considering how to address predatory lending issues, the Productivity Commission has suggested that lender self-regulation 'may be more effective than black letter law'. 112 An example of this type of self-regulation has been implemented at ANZ, through their 'public responsible lending commitments'. 113 While this is a positive development, lender self-regulation can be problematic. It is likely to vary from institute to institute, and it does not have a single regulatory body governing enforcement. While many banks and prominent lending institutes have an incentive to lend responsibly to maintain their reputation, 114 other lenders that are less likely to have repeat customers are extremely unlikely to implement responsible self-regulatory practices.
Banks may also subscribe to the Code of Banking Practice (Code). 115 Although the choice to join is voluntary, the decision to join 'makes the commitments in the Code binding on the subscribing bank'. 116 Clause 25 of the Code, introduced in 2004, states that signatories to the Code will 'exercise the care and skill of a diligent and prudent banker in selecting and applying our credit assessment methods and in forming our opinion about your ability to repay' before offering or granting a customer a credit facility. A review of the Code published in December 2008 117 found that a number of consumer advocates were concerned that 'more detail is now needed' for clause 25 of the Code. 118 They suggested that banks should be required to ensure that '(i) the product meets the needs of the customer; and (ii) the customer has the capacity to repay the loan CRA where the lender engaged in asset-based lending and failed to following its internal lending guidelines. 111 119 The Code is therefore very limited as a self-regulatory instrument. Not only is it in need of review, it is also voluntary and highly unlikely to capture those lenders most likely to engage in irresponsible lending. 2

Disclosure Requirements
Classical economic theory requires both parties to a transaction to have 'perfect knowledge' of the goods involved in the transaction. 120 This creates a more competitive market 121 and enables consumers to protect themselves from bad deals. This was the theory behind the introduction of the disclosure requirements in the UCCC. One of the objectives of the UCCC was to require 'truth in lending', by making information such the price of credit and the repayment and foreclosure terms easily available. 122 Through 'truth in lending' practices, the UCCC 'seeks to avoid regulation that restricts product flexibility and consumer choice'. 123 The UCCC therefore contains explicit disclosure requirements but no monetary caps or ceilings.
However, the large body of research into behavioural economics and the UCCC disclosure requirements repeatedly demonstrates the limitations of disclosure in addressing information asymmetries and over-indebtedness. 124 Large amounts of complex information presented to the consumer at once will not aid in the consumer's comprehension of the transaction. 125 Even where consumers have perfect information, not all consumers will use it to their best advantage, because comparing information is complex and time-consuming, and 'most consumers will quite rationally only dedicate a certain amount of time to the task'. 126 Behavioural economists have also found that consumers may simply ignore information disclosure. 127 For example, research into consumer over-indebtedness on credit cards has revealed that a consumer's emotions may counteract any benefit gained from disclosure requirements. 128 Further, studies have shown that psychological manipulation of disclosure information, such as varying the number of credit options available, 'has the same effect as a one half percentage point change in the monthly interest rate'. 129 These studies not only demonstrate the ways in which consumers may ignore or fail to accurately comprehend disclosure statements, but also the potential for lenders to manipulate consumer behaviour in order to pursue increased profits.
Disclosure requirements are also highly irrelevant to those consumers who do not have any real choice in accepting credit. As Justin Malbon explains, the policy assumption behind the disclosure requirements 'is fine, providing that there are better alternative lending options available to low-income consumers'. 130 This is often not the case, and lower income consumers 'may be more inclined to take the loan they are offered without question because they believe it is the only loan they will be offered'. 131 Lenders are able to exploit this belief by targeting 'unsophisticated people who believe that their ability to borrow money is limited'. 132 For this reason, financial exclusion of vulnerable or disadvantaged consumers must be avoided; these borrowers must believe that they can get a fair deal elsewhere if disclosure statements are to have any purpose or effect. 3

Consumer Education and Counselling
Dr Elizabeth Lanyon has suggested that consumers in lower socio-economic groups may not be able to make use of disclosure information due to a 'lack of financial literacy', which 'could be improved by education initiatives'. 133 An example of such an initiative is the Financial Literacy Foundation, whose Understanding Money campaign works in schools and workplaces. 134 However, it has been demonstrated that consumer education and counselling initiatives are limited in their ability to prevent predatory lending practices. Research shows that there is only a weak correlation between the teaching of financial concepts and subsequent financial behaviour, 135 and that 'departures from the assumptions of rational decision-making are…difficult for education to correct'. 136 While extended one-on-one credit counselling has been shown to have a positive impact on borrower behaviour, 137 financial literacy programs are a 'relatively expensive policy option'. 138 A mandatory counselling scheme, requiring consumers to go to a counsellor immediately prior to getting a loan, would also likely be highly ineffective in a situation where the consumer has the loan forms directly in front of them, waiting for them to sign. 139 Although financial counselling 'unquestionably should be available for those who seek it', education is 'not a cure-all for predatory lending'. 140 Financial literacy campaigns must be undertaken 'in concert with laws and regulations that address consumer protection through regulation of conduct in the marketplace'. 141 Something more than education is required to combat irresponsible and predatory lending practices.

Unfair Contract Terms Legislation
It has been suggested that the proposed national unfair contract terms legislation 142 cover banking and financial services, including credit agreements. 143 In Victoria, state unfair contract terms legislation has been extended to cover some consumer credit contracts, including non-bank housing finance that is targeted at first home buyers. 144 This could arguably afford consumers some protection from irresponsible lending practices, as any terms under the contract, such as repayment obligations, that were deemed too harsh or unfair would not be binding on the consumer. However, the scope of this legislation is quite narrow, applying only to standard form, non-negotiated contracts in which the consumer can be shown to have suffered detriment, and excluding the upfront price of the good or service. 145 It therefore seems highly unlikely to be applicable to irresponsible lending practices, particularly where the repayment terms are quite common or even objectively fair, but simply highly unsuitable for a particular consumer.

Is Regulation Warranted?
Intervention in the market through regulation is very commonly viewed as a last resort. Chris Field states that: regulation is justified where: (1) there is a demonstrable market failure; (2) the regulation proposed is directed to addressing the market failure; (3) the regulation is the least restrictive way of achieving its remedial purpose; and (4) the regulation does not create more costs than the benefits it seeks to achieve. 146 138  The previous sections have established that there is an identifiable market failure; that the current regulatory framework is not sufficient to correct the failure; and that less restrictive policy options are inadequate. However, a few arguments remain unaddressed and are summarised below to demonstrate that the introduction of new regulation is justified. 1

Identifying a Market Failure
The first step in formulating consumer protection policy is to clearly identify the consumer protection problem. 147 Some have argued that irresponsible lending in the Australian market is not extensive enough to warrant intervention, especially when compared to a market such the US. The non-conforming housing loan market in Australia 'accounted for only around 1 per cent of the mortgage market in mid 2007, compared to around 13 per cent in the United States'. 148 It is argued that 'lending standards were not eased to the same extent' 149 in Australia as in other jurisdictions, and that 'the legal environment in Australia places a stronger obligation on lenders to make responsible lending decisions than is the case in the United States'. 150 While it may be true, it has been seen that the consumer protection laws in Australia are still insufficient to address the problem of irresponsible lending. While the statistics may be relatively low, they still represent thousands of Australians who may be unnecessarily struggling to meet repayments and save their most valuable asset, the family home. A recent inquiry found that 'Australia is highlighted (along with UK, US and Canada) for the rapid growth in lending to households with poor credit histories'. 151 It is fair to say that there is an identifiable consumer protection problem in the Australian residential mortgage market.

A Market-based Solution?
Identifying a market failure does not mean that regulation is necessary. It must be established that there is not a market-based solution that will adequately correct the problem. 152 For example, it is argued that some lenders are already engaging in more responsible lending practices. Many lenders 'have reduced their maximum loan-tovaluation rations (LVRs), with most of the largest lenders reportedly no longer offering 100 per cent LVR loans'. In addition, some lenders 'are also applying tighter criteria for low-doc loans, including increased documentation requirements and risk margins'. 153 This has led some to argue that lenders will recognise that 'predatory lending is not profitable', and so the market will correct itself and 'predatory lending will cease'. 154 However, there is no established correlation between reduced profits in the subprime market and predatory lending. 155  reached local markets', 156 and therefore may be in a position to identify potential problems before they occur locally. The US subprime crisis may be an example of this; the government is able to identify a gap in regulation that has caused problems overseas and address it before it gets out of hand locally. Although it may be argued that the Australian market is comparatively healthy, economies are always in flux, and it must be better to regulate now than to hope that the market continues to self-regulate into the future. 3

Costs and Benefits
It is necessary to weigh up the costs and benefits of the introduction of any regulation. Trebilcock argues that consumer protection regulation 'is only likely to make consumers better off if it either: (a) improves consumer estimates of the value of information; or (b) reduces the cost of information to consumers (or both)'. 157 The costs and benefits of the NCCP Bill have been debated in submissions on its exposure draft. Predictably, lending institutions have particularly emphasised the high compliance costs that the new legislation will create. GE Finance states that the costs to businesses of implementing the required changed will be 'very substantial', and that the ongoing compliance costs 'will be disproportionately high'. 158 There is concern that the regulation will 'increase the cost of lending to all credit consumers, irrespective of whether they are at high risk of defaulting', and lead to denial of credit for 'those willing and able to pay the loan'. 159 The Commonwealth Bank argues that compliance costs may be passed on to the consumer and that the legislation will have a 'significant negative impact on spending, investing and job creation within the economy'. 160 These firms have arguably overstated the true risks of this legislation. Legislation to ensure responsible lending should benefit all consumers as long as it does not result in financial exclusion. There may be additional costs borne by lenders, but they are also protecting themselves from potential consumer defaults and legal action. These issues are examined in greater detail in part three. 4

Form of Regulation
Identifying the appropriate form of regulation to implement is a final, key consideration. The regulation proposed is in the form of legislation that imposes an ex-ante obligation on all lenders and intermediaries to make a suitability assessment of borrowers. It has been argued that introducing such legislation is paternalistic, and may limit consumer choice and autonomy. New disclosure requirements are also proposed which may 'generate information that is costly for consumers to interpret or access' and therefore 'may be counter-productive', especially as they mandate disclosure of complex details 156  such as price, terms and conditions. 161 The form of regulation chosen is therefore vital to its success as a consumer protection instrument, and this is examined in detail in part three.

D Conclusion
Using current consumer protection laws, it is evident that only the smallest proportion of cases will be successful in providing redress for victims of irresponsible lending. Alternative methods of consumer protection, such as lender self-regulation, greater disclosure requirements or consumer education initiatives, while less invasive of the market, are also not a complete solution. A clear market failure has been identified, for which no market-based solution will emerge. Therefore, the introduction of additional regulation is justified. The form of this regulation and its effectiveness as a consumer protection instrument are analysed in part three.

IV CONSUMER PROTECTION AND THE NCCP BILL
A

The National Consumer Credit Protection Bill
The NCCP Bill was introduced in Parliament on 25 June 2009. 162 The proposed responsible lending laws require all banks, credit unions, finance companies and other lenders, as well as all intermediaries who assist consumers to obtain credit, to become registered and licensed. In order to maintain this licence, firms must comply with a number of obligations, including responsible lending conduct. The key obligation in this respect is to ensure that lenders do not provide, suggest or assist borrowers in obtaining 'unsuitable' credit. 163 The responsible lending obligations are to commence on 1 January 2011. 1

Key Responsible Lending Provisions
Chapter 3 of the Bill contains the responsible lending provisions. Division 2 of part 3-2 imposes new disclosure requirements on credit providers, requiring them to give consumers a 'credit guide', 'as soon as practicable after it becomes apparent to the licensee that it is likely to enter a credit contract with a consumer who will be the debtor under the contract'. 164 The division further outlines what the licensee's credit guide must contain, including information about the internal and external dispute resolution scheme and any other requirements prescribed in the regulations. 165 Division 3 of part 3-2 outlines the principal responsible lending obligations on all credit providers. Section 128 states that a licensee must not enter a credit contract with a consumer, or increase the credit limit of a credit contract with a consumer, unless, within the previous 90 days, the lender has made an assessment that is in accordance with s 129 and has made the inquiries and verification in accordance with s 130.
Section 129 requires the licensee to make an assessment as to whether the credit contract will be 'unsuitable' for the consumer if the contract is entered into or the credit limit is increased in the assessment period. To complete this suitability assessment, s 130(1)(a)-(e) requires the credit provider to 'make reasonable inquiries' about the consumer's 'requirements and objectives' in obtaining the credit; 'make reasonable inquiries' about the consumer's 'financial situation'; 'take reasonable steps' to verify the financial situation; and make any inquiries or verification prescribed by the regulations. According to the Bill's Explanatory Memorandum (Memorandum), the 'general position is that consumers should be able to meet the contract's obligations from income rather than equity in an asset'. 166 Therefore, although not expressly written in the legislation, it appears that the drafters of the Bill envisaged that asset-based lending would generally be 'unsuitable'.
Section 131(2) outlines circumstances in which the contract will be deemed unsuitable. These are where 'it is likely that' the consumer 'will be unable to comply' with the consumer's financial obligations under the contract, or is likely only to comply 'with substantial hardship'; where the contract 'will not meet the consumer's requirements or objectives'; and in any circumstances prescribed in the regulations. Additionally, there is an important presumption in s 131(3), in which 'if the consumer could only comply with the consumer's financial obligations under the contract by selling the consumer's principal place of residence', substantial hardship will be presumed, making the contract unsuitable. It appears that the credit provider will be required to take only reasonably foreseeable circumstances into account when making this assessment. 167 It also appears that even where a borrower has satisfied a credit provider's internal lending guidelines on suitability and capacity to repay, the credit provider will not necessarily have met the standard set by the legislation. 168 However, the Memorandum notes that the credit provider's internal assessments of affordability would likely be 'very similar' to those required by the legislation. 169 Section 131(4) states that only information about the consumer's financial situation, requirements or objectives that the licensee had reason to believe was true or would have had reason to believe was true if inquiries or verification under s 130 had been made, is able to be used to determine if the contract will be unsuitable. This creates an assumption that credit providers will have knowledge of information 'that they should have become aware of if the reasonable steps to verify had been taken'. 170 An onus is put on credit providers to 'ask the client about their financial situation' and 'make such efforts to verify the information…as would normally be undertaken by reasonable lenders in those circumstances'. 171 What 'reasonable' lenders 'normally' undertake seems subjective, although the Memorandum suggests that conducting a credit reference check is likely to be reasonable, and that lenders are not expected to go beyond 'prudent business practice in verifying the information they receive.' 172 166 Commonwealth, House of Representatives, above n 163, 105. 167 Ibid 111: the Explanatory Memorandum states that 'for it to be likely that the consumer will be able to comply with the financial obligations under the contract, the credit provider must take a future view of the reasonable foreseeability of that compliance, given the financial obligations will arise into the future'. 168 Ibid 108. 169 Ibid 108-9. 170 Ibid 109. 171 Ibid 107. 172 Ibid. According to the Memorandum, refinancing of credit requires a higher level of inquiry in order to meet the 'reasonable' standard; where the level of repayments will be the same or similar to the current contract, the contract will be prima facie unsuitable. 173 However, the Bill itself contains no positive requirement for the refinance to put the consumer in a better position than under his or her previous contract, or even for the refinance to not put the consumer in a worse position. No such requirement has been included because it is apparently covered by the suitability requirement. 174 However, it has been argued that the lack of a positive requirement may mean that the suitability provisions will not cover a consumer who can still afford the refinance, but who is ultimately worse off under the new contract. 175 Division 4, s 133(1) prohibits a licensee lender from entering into or increasing the credit limit of an unsuitable credit contract. Section 133(6) makes it an offence to contravene the s 133(1) requirement, with the penalty being 100 penalty units or two years' imprisonment, or both. 2

Credit Assistants
Similar responsible lending obligations are imposed on credit assistants under part 3-1. 'Credit assistant' is defined in s 8 to be, inter alia, any person who suggests to or assists a borrower to apply for credit, apply for an increase in credit, or remain in their current credit contract. 176 Credit assistants must provide the consumer with both a credit guide and a quote, and make a 'preliminary assessment' as to the suitability of the credit for the consumer, which is very similar to the assessment that the credit provider must make. The assistant must also disclose any relevant further information, such as the commission the assistant is likely to receive as a result of the transaction. The overlap of duties and responsibilities between credit providers and credit assistants may compromise the effectiveness of the NCCP Bill, and is discussed further below.

Remedies
If a consumer is granted an unsuitable contract by a credit provider, he or she is able to seek an injunction to prevent the credit provider from collecting interest payments; 177 seek compensation for any loss or damage; 178 or seek an order to vary the contract or declare all or part of the contract void. 179 Where the credit provider has failed to verify income, but the borrower has made false or misleading statements in order to obtain credit that is unsuitable, the quantum of damages can be modified to reflect the culpability of the consumer. 180 These remedies have been described as 'appropriate'. 181 B

Form of Regulation: Paternalism and the Suitability Doctrine
The NCCP Bill imposes a requirement on all lenders and intermediaries to assess 'suitability' before granting loans. This form of regulation is not unique and is strongly supported by some critics. However, some arguments have contended that the legislation is paternalistic and may restrict consumer choice and autonomy. There is an argument that the focus should instead be on encouraging 'responsible borrowing'. 1 The 'Suitability' Doctrine The 'doctrine of suitability' outlined in the NCCP Bill is not a new initiative and has been traced in the US back to the late 1930s. 182 It has been used more recently in the US Home Ownership and Equity Protection Act, 183 which 'prohibits lenders from making high-cost home loans to consumers based on their collateral without regard to their repayment ability'. 184 The theoretical basis for the suitability doctrine lies in the idea that lenders are in a better position than borrowers to assess the level of debt that borrowers can manage. 185 Engel and McCoy argue that, while disclosure requirements are 'useless' and financial literacy initiatives are expensive and 'unlikely to succeed', lenders themselves 'can avoid the harm from predatory lending in a cost-effective manner by using traditional underwriting processes and guidelines to assess the suitability of customers' loans'. 186 The suitability doctrine is therefore able to operate to protect consumers where other initiatives have failed.
Laws requiring suitability assessments for mortgage products are found in a number of other countries. 187 The European Commission is currently working on a consultation to analyse responsible lending issues throughout Europe. 188 In the US, a broader approach has been taken to address irresponsible lending and the foreclosure crisis. Legislation has been proposed to establish the 'Consumer Financial Protection Agency', which will be dedicated to protecting consumers from predatory lending practices. 189 There are also calls to allow homeowners to restructure their current mortgages under court supervision, which would allow a court to reduce the balance of a loan to bring it into line with the property's current value, in cases where homeowners have exhausted all other options. 190 While these are undoubtedly positive developments, they may not prevent similar problems from re-occurring in the future. To that end, there is proposed legislation that will, inter alia, create a duty of care on residential mortgage originators and prevent a creditor from lending without due regard to the mortgagor's ability to repay. 191 It therefore seems that the NCCP Bill and its use of the suitability doctrine to impose a responsible lending duty is not only an appropriate and much needed response in Australia, it is also rapidly becoming the way forward in a number of other jurisdictions. 2

Paternalism versus 'Responsible Borrowing'
The proposed laws have been described as having a 'patronising attitude' 192 towards consumers, and as taking away or limiting consumer choice, thus making them paternalistic. Paternalistic legislation is not ideal because it both 'adds red tape and costs to consumer transactions' and 'goes to the heart of the exercise of liberty and autonomy by consumers' by restricting autonomous action. 193 While these laws do create some restriction on free choice, this is surely 'outweighed by the severe negative effects of predatory loans on borrowers and on society.' 194 That is, irresponsible lending has not only affected those consumers directly subject to predatory loans, it has had negative repercussions for the economy as a whole. In the US, economic problems such as falling house prices and lower incomes have meant that even 'good credit' borrowers with prime mortgages are having difficulty meeting repayments. 195 The effects of irresponsible lending are not felt by only a small group of vulnerable or disadvantaged consumers.
It is commonly suggested that this form of paternalistic regulation should not be necessary if consumers take greater responsibility for their own borrowing habits; that is, that there should be a duty on consumers to borrow responsibly. It is not disputed that it is important for consumers to educate themselves and make appropriate financial decisions. However, it must be remembered that there are groups of vulnerable and disadvantaged consumers who are incapable of protecting themselves financially. As seen in part two, lenders or intermediaries are able to actively target, manipulate and exploit these vulnerabilities in consumers, through psychological manipulations, abuse of loopholes in the legislation, or outright fraud. Consumers are not necessarily acting by free will where predatory lenders are able to rely on 'deception, naïveté, and information asymmetries -circumstances that are inimical to the formation of free will'. 196 In light of the immense power imbalance between lender and consumer in these circumstances, and the negative flow-on effects from bad loans that affect both the economy and other consumers, the balance must fall on the side of introducing legislation, even where doing so may create some limits on consumer choice. In this case, paternalism is necessary and justified for the broader interests of society, not just the consumers in question. 197

C Potential Limits on the Efficacy of the NCCP Bill
Chris Bowen MP 198 has described the proposed responsible lending laws as 'world's best practice'. 199 While he admits they are 'fairly tough', he has also stated that they are 'well balanced'. 200 Balance is indeed important in the implementation of this legislation. Lending standards must be tightened so as to protect vulnerable consumers, but must not be tightened so as to unreasonably restrict consumer choice, or result in financial exclusion. The legislation must avoid being overly proscriptive, but at the same time must ensure there are no loopholes that can be exploited by unscrupulous lenders. There will naturally be some compliance costs to businesses, particularly from the new disclosure requirements, but these should not unreasonably be passed on to consumers. These are the key issues that may affect the NCCP Bill's effectiveness as a consumer protection instrument. 1

Financial Exclusion and Reduction in Availability of Credit
One of the more concerning allegations made against the responsible lending provisions is that they will result in the exclusion of low-income consumers from obtaining mainstream credit. Abacus argues that there may be more stringent verification required for low-income earners, which may risk making credit less available and/or more expensive for this group of consumers. 201 The Consumer Credit Legal Service (WA) (CCLSWA) notes that 'discriminating merely on the basis of income must be monitored and regulated', and that there 'are many people on a low income who have just as much capacity to service a credit contract…than those in a higher tax bracket'. 202 There is also a concern that lower-income consumers will be discriminated against under the 'substantial hardship' test, as it may be assumed that those on lower incomes may have a lower 'hardship threshold', despite the fact that 'some consumers will be far more resilient than others', regardless of income or financial commitments. 203 For this reason, CCLSWA suggest that 'substantial hardship' should not be interpreted in its narrowest sense. 204 The danger of excluding low-income consumers is that it may lead to greater levels of over-indebtedness. If mainstream finance is not accessible to low-income consumers, they are more likely to fall victim to predatory lenders. Consumers on low incomes must have access to 'safe credit' when applying for mortgages. 205 For successful implementation of the responsible lending initiatives, it is vital that credit providers recognise that they 'should not deny access to credit by low income, vulnerable and disadvantaged consumers who are capable of managing their finances effectively'. 206 In the US, the Community Reinvestment Act 207 (Reinvestment Act) encourages banks to expand mortgage lending to low-income consumers who may have difficulty accessing mainstream finance. While the Reinvestment Act has been criticised as encouraging subprime or risky lending, 208 there has also been much evidence disputing these criticisms. 209 If necessary and justified, a similar principle could be applied in Australia to ensure access to home mortgage lending for low-income consumers.
However, it is not just low-income consumers who may be affected. Uncertainty as to the requirements of the legislation could lead to a reduction in the availability of credit products and services for all consumers. Some lenders have contended that the requirements and terms used in the legislation are 'arguable and subjective'. 210 For example, the requirement to 'make reasonable inquiries' is used repeatedly throughout the Bill and, although the Memorandum gives some guidance on the meaning of this term, 211 it also states that 'what is reasonable will depend on the circumstances', 212 making this requirement vague and subjective. Some lenders claim they will be forced to 'significantly reduce the availability of credit', in order to ensure they do not breach the legislation 213 and may stop offering certain products and services. For example, ANZ has submitted that it is uncertain whether low-doc loans would meet the standard set by the responsible lending obligations. 214 Further explanation or guidance is required on these issues; the current lack of information threatens to restrict the availability of credit for all consumers. 215 the account'. 216 Part IIIA of the Privacy Act 1988 (Cth) currently prohibits positive credit reporting. However, in May 2008 an Australian Law Reform Commission report found that more comprehensive reporting could be introduced if accompanied by a specific legislative responsible lending requirement. 217 It therefore appears to be an appropriate time to introduce a positive credit reporting system. This system could be used to combat financial exclusion. A study has found that the positive credit reporting system in the US has led to greater accuracy in risk scoring and hence to a wider range of consumers being successful in applying for credit than in Australia. 218 It has also been argued that a positive credit reporting system 'would also result in better data verification than would be possible using the current negative reporting system'. 219 If more detailed and accurate information is available to lenders, they may be more likely to lend to those on low incomes and thereby aid in preventing financial exclusion. 2

Potential Loopholes within the Bill
Any restriction on free choice is justified only where the legislation concerned genuinely achieves its consumer protection goals. This legislation alters well-settled principles of law governing the contractual relationship between lender and borrower. Therefore, there may be an inclination by the court to read down the provisions of the statute and revert to more familiar legal doctrines. 220 This inclination must be resisted, or the entire purpose of the legislation may be undermined. Any potential loopholes in the legislation that may be interpreted contrary to the intention of Parliament must be avoided.

(a) Section 130(3)
Currently, s 130(3) of the NCCP Bill allows a credit provider not to have to verify an assessment as to suitability if a credit assistant has already made a preliminary assessment under s 116. There were many concerns raised that this section has the potential to be 'exploited by predatory lenders as a defence to not undertaking further enquiry and verification'. 221 Reliance on inaccurate information from brokers is 'one of the key weaknesses in the current lending practice', 222 as seen in part two. The Consumer Credit Legal Centre NSW noted also that the section could be 'interpreted as limiting the credit provider's overarching responsibility to assess loan suitability, including verification'. 223 For this reason, a number of the submissions on the Exposure Draft of the NCCP Bill argued for s 130(3) to be deleted in its entirety. In opposition, however, the Australian Bankers' Association argued that credit providers should be able to rely on information provided by registered and licensed credit assistants, or else it would render the licensing and registration of credit assistants completely futile. 224 In accordance with a recommendation from the Senate Economics Committee, 225 the government will be amending the NCCP Bill to delete s 130 entirely. 226 Although alternative approaches to close this loophole were available, such as requiring lenders to randomly audit information received from brokers, deleting the section entirely will allow lenders to rely on information received from brokers if they are certain that the information is correct, but will not allow predatory lenders a defence for relying solely on broker-originated information. 227 This development is therefore strongly supported as a measure that will improve the NCCP Bill's efficacy as a consumer protection instrument.

(b) Waiver
The question of whether informed consumers should be entitled to waive their rights to suitability assessments has been raised as a suggestion to mitigate the argued paternalistic nature of the legislation. 228 The difficulty with waiver, however, is that 'it opens a back door through which lenders and brokers can engage in the same abuses that militated in favour of regulation in the first place'. 229 Consumers who are desperate to gain finance may unwisely waive their rights to a suitability assessment, the effects of which can 'redound to the harm of society, not just borrowers'. 230 There may be room to argue that waiver be allowed only in certain circumstances, or where the consumer is informed and perhaps experienced. However, any eroding of the suitability requirement could undermine the purpose and effect of the legislation entirely. 231 It appears on balance therefore that such an option should not be created, as it could be exploited by unscrupulous lenders and thereby used to avoid the requirements of the legislation. 3

New Disclosure Requirements
The disclosure requirements contained in the Bill have been met with some criticism on the grounds that they may not add to consumer understanding, but may result in greater compliance costs for the lender. Redfern Legal Centre remarked that, in their experience, 'many of our clients don't read all the documents with which they are provided under the present regime'. 232 Many banks and other lending institutions have argued that the provisions are an 'unnecessary compliance burden'. 233 There is also concern that the current process for disclosure as outlined by the legislation could result in a doubling-up of information, meaning that the 'consumer would be flooded with a number of disclosures which would not add clarity'. 234 However, there is strong support for the new requirements from consumer advocacy groups. CCLSWA argues that the credit guide should be of great benefit to the consumer in making comparisons among credit products. 235 They suggest, however, that there be a requirement for the credit guide to be 'written in clear language, be succinct and accurate in the way it records the information, outlining all the salient points'. 236 There should also be consideration given to 'streamlining both the documents to be provided to consumers and the information contained within them'. 237 The implementation of both these suggestions should result in more effective disclosure to consumers and fewer compliance costs for lenders. 238

D Conclusion
The NCCP Bill proposes legislation that contains a targeted and specific duty to lend responsibly. While it may reasonably be described as paternalistic, this is justified in the light of the potential harm caused by irresponsible lending. In order to reach full efficacy as a consumer protection instrument, however, the legislation must avoid reducing the availability of credit, as this could aggravate the problems of financial exclusion and over-indebtedness. Potential loopholes that could undermine the purpose and effect of the legislation, such as the introduction of a waiver option, or provision equivalent to s 130(3), must also be avoided. The disclosure requirements contained in the NCCP Bill are supported, but ideally must contain a requirement for clarity to avoid obfuscation for consumers and must avoid any duplication of information to minimise compliance costs for lenders.

V CONCLUSION
'Never again should we let the schemes of a reckless few put the world's financial system -and our people's well-being -at risk.' 239 Irresponsible lending in the residential mortgage market can lead to devastating losses, both for individual consumers and for the Australian economy. The recent rapid expansion in the number of credit providers and intermediaries operating in the market has resulted in a rise in the availability of credit and a rise in the number and variety of credit products available to consumers. Factors such as the increased availability of nonconforming and low-doc loans, asset-based lending practices, and securitisation of loans have contributed to lowered lending standards and a correlated rise in irresponsible and predatory lending. Consumers have been granted loans that are patently unsuitable, which has, for many consumers, placed their most valuable asset, the family home, in jeopardy. Irresponsible lending is a market failure that must be addressed to prevent further harm from occurring.
The statutory reopening provisions and equitable doctrines have been narrowly interpreted in a manner that is no longer compatible with modern lending practices. As such, they are no longer able to adequately protect or provide redress for consumers who are victims of irresponsible lending. While continued consumer financial education and counselling are vital, and consumer disclosure information allows consumers access to essential information, these methods alone cannot bridge the information gap between lender and borrower. Lender self-regulation is also inadequate as long as unscrupulous lenders are able to target vulnerable and disadvantaged consumers in the interests of increased profits. Irresponsible lending cannot be addressed through any lesser means than the introduction of additional regulation.
The proposed regulation is in the form of legislation that imposes an explicit obligation on all lenders and intermediaries to assess the consumer's capacity to repay and the appropriateness of the credit for the consumer, before approving the loan. This ex-ante suitability assessment obligation is a direct and appropriate response to the irresponsible lending problem. The legislation is arguably paternalistic in nature, but this is justified when weighed against the far-reaching negative externalities caused by irresponsible lending. However, the efficacy of the proposed legislation may be affected by a number of factors. The legislation may result in a reduction in the availability of credit, which may aggravate problems of financial exclusion, particularly for low-income, vulnerable or disadvantaged consumers. Several strategies have been suggested to combat this problem. Releasing further information to lenders will help to increase certainty and understanding of the new legislative provisions. Introducing positive credit reporting or implementing a scheme similar to that in the Reinvestment Act may also be appropriate.
Loopholes in the legislation that may compromise its effectiveness, such as the former s 130(3) or the possibility of the introduction of a waiver of the suitability assessment, must be monitored and avoided. The disclosure requirements set out by the legislation are supported, but must be subject to a requirement of clarity and simplicity so as not to hinder consumer understanding.
It has been reiterated throughout this article that the introduction of any new regulation will always involve a question of balance. In the context of consumer credit law, consumer freedom, access to credit and innovation in the market must be weighed against consumer protection and market efficiency. 240 This is not a simple process, but it is a 'vital task'. 241 The Australian government has acted promptly and commendably in introducing the NCCP Bill to combat irresponsible lending. However, markets are notoriously difficult to predict and, while the proposed legislation is a theoretically appropriate response to the identified market failure, it is by no means a panacea for irresponsible lending and all its associated practices. As Justin Malbon observes, 'the long history of lending regulation suggests that no single approach will solve the problem'. 242 Only time, further research and close observation will ensure that consumers are protected from irresponsible lending into the future.