So this loan was

‘irresponsible’-

What Now?

Catherine Uhr

Senior Lawyer

Civil Justice Services (consumer protection)

Jenny’s budget, $ 80 000 grossIncome ($58 453 per annum nett) F/N $2248.19

Fam Tax $170.66

Total: $2418.00Fortnightly Expenses:

Mortgage($350 000) $944

Water 60

Phone 75

Rates 40

Gas 50

Elec 110

Bus Fares 40

School fees 305

Car rego 90

Insurance 170 $940 Sub total expenses : $1884

Groceries: 500

Balance nett f/n income for discretionary expenditure: $34.00 per f/n

‘Medication’

The Accomplice Semillon Sauvignon Blanc $4.00 x 8 days (5:2 diet, 3 nts per week) 32

Cold trickle cold brewed coffee, or demitasse turmeric soy latte^ 40

Paracetamol forte++ 12

84

Balance nett f/n income for discretionary expenditure:- $50.00 per f/n

Credit Card

• $2 000

• At 18%

• Min pmt(f/n)= $19.

• BUT there was an increase:

• $ 6000

• At 18%

• Min pmt (f/n) 56.00

• ($21 000 over 5 yrs)

Fix the credit cardWhy?

FOS Circular – Issue 5 March 2011 –Responsible Lending Conduct

• BFSO Bulletin 50, June 2006, Unsecured Credit and Maladministration

• BFSO Bulletin 45, March 2005 Credit card limits and maladministration

What?

1. Identify increases made in the last 6 years

2. Wind back the card to affordable limit

3. Re-credit fees and interest paid on credit used over that limit

4. Offer hardship plan, rework out repayments(freeze limit)

Cosmetic Surgery Loan

• Refused ………………..but:

Bad Advice?

Draw down superannuation on compassionate grounds:

For instance Jenny is 53 and is withdrawing $25 0000 as a lump sum on compassionate grounds. She doesn’t pay tax on the tax free component (say $1 000 but this will vary) then pays 22% or if her marginal % is lower the lower on the balance, therefore:

$19 720 in hand.

Drawing down superTax Payable:

The Tax payable will depend on

• Age

• Purpose of early withdrawal (if you are going to die in 2 yrs there is no tax payable)

• Tax free and taxable proportion of funds held by the fund

• Whether the payment is a lump sum or payable as an income stream.

See www.ato.gov.au Home/ Individuals/ Super / In detail / Withdrawing and paying tax / Withdrawing your super and paying tax•

Recommending super draw down?

Super protected in bankruptcy!

28.9 Banking Code of Practice:

We will not require you to apply for early release of your super to repay the whole or any part of your credit facility

And see: 67(a)Mortgage and Finance Association of Australia Code of Practice

FOS guidance:

• http://www.fos.org.au/custom/files/docs/the-fos-approach-to-early-release-of-superannuation.pdf

•

But her car died……(New Car!)

Car Loan!

Credit Ombudsman ServiceResponsible Lending:

http://www.cosl.com.au/publications/position-statements/position-statement-

5/Financial Ombudsman Service

http://www.fos.org.au/custom/files/docs/fos-approach-to-responsible-lending-assessing-consumer-loss.pdf

Non Financial Loss

http://www.fos.org.au/custom/files/docs/the-fos-approach-to-nonfinancial-loss-claims.pdf

•

ASIC Regulatory Guide 209

Lender gets car/Car loan loss:

Value of the trade in

Re-credit junk insurance and interest paid

on premiums

Cost of loan and balance owing after sale of

car

Legal and enforcement expenses

Less the benefit of using the car (retail price

at purchase less retail price on surrender

OWE: $4500 Centrelink debt

• S 3(1) Family Tax Assistance Act ,income

has same meaning at the Tax Act

• Therefore:$80 000 eligible

($4437p/annum)

• But $80 000 + $25 000 = $105 000 =

• No eligibilty and you have to repay!

• Compare s8(1) SSA re disability support

and new start where super not counted.