Predatory home loan sharks are coming under increased pressure from consumer campaigners concerned at the number of Australians falling victim to rogue lenders.
It is feared the problem could get worse as interest rate hikes force struggling families to refinance their home loans. The need to keep a roof over their head could leave some families vulnerable to lenders operating on the fringes of the credit market.
Typically, predatory lenders target people in financial trouble, who have assets, such as a home, but little ability to repay a refinanced home loan. Often the sole intention of predatory lenders is to strip as much cash from their victim as possible by charging very high interest rates, excessive commissions and charges.
Cases of predatory lending are characterised by high levels of default. The Credit Ombudsman Service Limited has pointed out most predatory lending cases see borrowers default quickly, due to the high interest rates charged. Defaults sometimes occur as soon as the first month.
Often the tragic outcome for those who fall victim is the loss of their home and any equity they may have built up while repaying their home loan, causing real hardship for the families affected.
The issue has become so serious that a coalition of consumer groups and financial industry bodies has been set up to help raise awareness and to help tackle the problem. The coalition includes the Public Interest Law Clearing House, The Australian Banker's Association, Legal Aid NSW, the Consumer Credit Legal Centre, Abacus and the Mortgage and Finance Association of Australia.
According to Australia's Credit Ombudsman service, many victims of rogue lenders are vulnerable people who are less able to stand up for themselves. They are pre-dominantly people already in financial difficulties, Centrelink recipients, pensioners, non-English speakers or people with learning or mental health disabilities.
Rogue lenders get around consumer protection rules, such as the Uniform Consumer Credit Code, by structuring loans to fall outside of the credit code's jurisdiction.
Two sad cases highlighted by the NSW Consumer Credit Legal Centre show just what can happen. An unemployed couple, with four children, contacted the consumer watchdog, after being stung by unscrupulous money men. The family had gone to a broker when their home was threatened with repossession by their lender. The couple, who had fallen into serious arrears on their original home loan, also needed to raise money to pay off debts, register their car and convert a garage into an extra bedroom for an expected fifth child. The broker, who had been informed of the couple's income, set up two high interest loans, one at a whopping 23.6%. The broker was paid $15,000 dollars in fees and commission on top of the lender's fees. The family ended up owing $65,000 more than their original home loan, with little hope of ever repaying the debt.
In another devastating case, a migrant couple, who had lived in Australia for 35 years, lost their home after going to a broker to refinance their home loan to repay debts incurred due to a family crisis. The couple in their 60s had been repaying their home loan for 25 years, but after the broker arranged three loans in a couple of years they found they were unable to meet their repayments.
Home owners facing financial hardship and considering refinancing their home loan can get free, independent financial advice. They can contact one of Australia's state sponsored financial counsellors such as the Victoria state 'Consumer Action Law Centre', who are keen to help people avoid falling prey to the home loan sharks.
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