FINANCIAL ASSESSMENT BY BANKS

The dysfunction surrounding financial assessment of a proposed borrower is currently NOT about the borrower per say but about ‘productivity system intervention’ of the process designed to reduce staff costs for the FSP.  Indeed, to achieve ‘productivity’ targets everyone is lumped into categories and ‘assessed’ by software with little ability by people to press anything other than button a or b.  Quick?  Yes  / Simple? Yes / Accurate?  No.

As a matter of fact, it’s rubbish.

For example, I had occasion to shop around for a new home loan with a major bank and was unfortunately transferred to an idiot with no capacity for rational thought [indeed 3 times with 3 banks].  The monthly expenses that they insisted we incurred were a bank construct by a team of further idiots divested from reality [See AFR Sat 17/8/2019 report damning banks incompetence].  He / they just couldn’t understand the fact that we run a company with tax implications affecting our expenses.  He did not want to understand pre and post tax expenses.  A simple concept for anyone with half a brain but not for this bank employee making decisions between A and B. 

Dysfunctional for both the bank and the client!

To further this dysfunction it has been adjudged [same case – see comment on Caviar] that a client can actually self assess their expenses with some degree of alacrity.  ASIC lost the case to Westpac because the judge said that a prospective purchaser could adjust their spending habits to suit their commitments quite easily.  He virtually threw out the banks system of personal assessment.  Drive a Porsche before the house purchase but drive a VW after because there is only so much money. 

Simple.

There is no such thing as one size fits all and no such thing as a low level bank loans assessor with enough knowledge to make informed decisions.  Pushing button A or B doesn’t cut it.

They deal with a financial process over common sense.   So called productivity gone rampant.

The fix?  Training, training, training.  Front line bank staff need to understand finance.  Not just how to press button A or B. 

Assessment is all about risk factors.  Risks for the bank albeit now the impetus is shifting where bad advice and or bad process negatively affecting a client is also seen as a breach of fiduciary duty by the loan assessor / bank with responsibility subsumed by the bank and the application of pecuniary penalties. 

However, in effect, the banks risks are low because they have assurity through say a mortgage guarantee.  The problem for the banks is when the value of that guarantee slips below the outstanding loan as they would then be trading insolvent.

All the risk is on the client being able to make payments.  In the beginning by good financial analysis [not the aforementioned idiot] but no one can predict future events.  We all hope life is tickety boo and that we remain the person our dog thinks we are and we remain financially fluid.  This is where good planning comes in.  There must be a safeguard built in to protect people against short term issues.  A ‘nest egg’ by any other name.  The availability of money to pay loans in times of stress.

These are readily available with products such as offset accounts and interest only loans.  Both allow a financial hiatus in times of stress.  The trick for a lot of people is to keep the ‘de-stressing’ contingency balance without spending it. 

This is where the whole financial system needs to be adjusted and thought through.

We all want our own home and the Porsche returned but banks lending 95%+ disallows this life ambition as there is no risk contingency.  Really, only unemployment can cause headaches because without a contingency the Porsche is gone once again followed by the home.  Not good.

In an expanding market, the banks risks are low as is the overall financial position of the borrower because asset value increases will leave a balance to start again in the event of default.  Not good but not life threatening.  However unemployment in a contracting market will be devastating for the opposite reasons.

Therefore it is critical to factor in say a two year contingency balance to cover expenses in the case of unemployment et alia.  This is not available money to retrieve the Porsche but a controlled fund by the bank [not the idiot] to be made available with proven hardship.  A de-stressing fund.

Let’s assume the idiot gets retrained and becomes human and has to assess John & Mary's home loan application.  Financial alacrity is critical in understanding the expense patterns of the borrowers.  Understanding, not computer driven assumptive rubbish.

John sold the Porsche, structured his finances through a holding company and had the minimum deposit [the sacrificed Porsche].  The assessor analysed past credit card statements to ascertain willingness to repay debt, analysed EBIT to ascertain capacity to repay including pre and post tax expenses, and, sought a credit rating to ascertain past issues.  All keeping in mind that the client wants his house and will fight tooth and nail to make sure it’s kept in the family.  In the same way we drive a car just metres from death yet we have a self preservation instinct stopping us taking risks.

The big difference we need to initiate is the contingency balance concept where the borrower and the bank are assured of financial survival over say a two year default cycle through no fault of John or Betty.

It’s simple and it’s based on an assumption that values will always increase in the long term with short term fluctuations being irrelevant. 

The assessor has figured out that John & Mary pay their debts on time most of the time, have no ‘material’ credit defaults and have a steady income able to sustain a 95% mortgage with the Porsche sale as deposit.

The assessor has also calculated 2 years of expenses for John & Mary as a total figure which happens to come to 5% of the purchase price.

He then offers John & Mary a loan with an interest rate based on a REAL risk assessment [not by the idiot].  In this case they needed 90% leverage for which they received a nice lumpy cheque.  However, their debt was actually 95% with the 5% reinvested by the bank as an offset only to be accessed in a proven emergency such as unemployment.  All these 5% ‘s can reside in a special bank fund controlled by the bank with offsets automatically deducted for outstanding debt.  In this way the client is not tempted to spend it and they receive the benefit.

Simple.

Everyone wins!

This simple change almost eliminates risk for both the bank and the borrower as well as de-stressing everyone because everyone knows there is a ‘2 year nest egg’ of available money if …. !!

I urge the FSP’s to think this through by real breathing humans analysing risk, returns and the provision of a ‘forced’ safety buffer.  It’s a much a psychological comfort system as a financial safety net which would allow everyone to relax just a little bit more toward that tickety boo nirvana.

John & Mary have their house, a dog who believes they are close to God, two expensive kids and John has his Porsche back.  Life is good. 

Security through planning.

DEEMING CLAUSES AND UNCONSCIONABLE CONDUCT - A LAY PERSONS OPINION

Submission and argument that Financial Services Providers reliance on deeming clauses within their terms and conditions is misfounded … [many sources and paraphrased quotes]

 ‘Deemed’ – to adjudge a point of view as fact [my df].

 “Can an action or intention to action be deemed as unconscionable if that act or intention is against good conscience but as yet has no victim”.  The corollary is that there is no unconscionable intent until someone is affected? [Has the tree fallen if no one sees it fall?].

Take for example a contract and in the fine print there is a clause which stipulates that one party has the right to terminate the contract if they ‘deem’ any issue they wish a breach of that contract and the contract becomes null and void without loss of benefit to the author of the contract.   An obvious nonsense.

Now let’s assume, in the normal run of events, that a company is in a strong position with services in demand or people needing those services.  People sign off the contract including the ‘deeming clause’ because they have little choice.  Say a tenancy lease or a credit card contract.  At what point and under what circumstances does the enforcement of the deeming clause become unconscionable and do we even need an enforcement to recognise this term as unconscionable and to be read down?

I believe that it is enough to make such clauses unconscionable even if there is no victim just because it may confuse, coerce and mislead people and it has the intent of doing just that and advantaging the author unconscionably at the expense of others.

Take most credit contracts.   They will all have a similar deeming clause somewhere in their terms and conditions which allows an FSP to summarily terminate an agreement and demand instant repayment of a loan.  Yet there are provisions within the Code of Banking Practice, the Australian Consumer Law and the ASIC act which specifically preclude an FSP from actioning their deeming clause without due process.

So, on one hand we have the FSP with their deeming clauses and alleged cancellation rights and we have the law on the other stopping or at least modifying the same alleged rights.  As the FSP is well aware of the law and well aware of the way their deeming clause is inappropriate then isn’t the inclusion of such a clause by definition, unconscionable and unlawful because the intent of the clause is to take unconscionable advantage - even if it’s never acted on!

Therefore the precursor to any litigation is whether or not the deeming clause is unfair because the intent of the FSP is unconscionable.  I would say that any clause which purports to allow one party to just deem a contract null and void to someone’s disadvantage must be read down as it would be unconscionable to leave it there.

Now, an FSP acts on the deeming clause and we have a victim.  Mr Victim had a credit contract and was using his ‘card’ for everyday things and accumulating frequent flyer points and paying his monthly commitments.  He was late a couple of times but fixed the arrears and all was well.  Then someone from the FSP decided to change policy and deemed the victim’s card cancelled and the victim had to repay the entire debit within a few days because that’s what the deeming clause said.

This put the victim instantly in a state of special financial disadvantage for at least two very important reasons.  Firstly, he had to find the money elsewhere to pay the loan [if he could] and secondly he had relied on the line of credit and had no other money to live on or pay bills.  In effect he had relied on the FSP acting conscionably and in compliance with all parts of the law. Mr Victim complained but the FSP just pointed to the deeming clause as justification for the cancellation.  The FSP was well aware of the law but chose to mislead and coerce the victim into believing they had the right.  Now, not only is the deeming clause unconscionable but the FSP has acted on that clause in the full knowledge of its effect on the victim.  The act is also unconscionable and caused Mr Victim to lurch into a state of special financial disadvantage.

Perhaps Mr Victim has an actionable case against the FSP on at least two grounds.  Firstly, the FSP included such a clause with obvious unconscionable intent and secondly, it acted on it possibly outside the provisions of law.  I would say that pecuniary penalties apply for both inclusion and act and the victim needs to be compensated.

Further …Unconscionable conduct - irreconcilable with what is right or reasonable and show no regard for conscience. [pecuniary penalty circa $1.1m]

Recent decisions (Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90) made it clear that for conduct to be seen as unconscionable the determining factor was the respondent’s conduct and not the applicant’s response. It is the ‘conduct’ which is at issue and not the applicant else it could be said that the applicant is being tried for the conduct of the respondent.  A nonsense. 

Whilst it is noted that it is not sufficient for unfair, unjust, wrong or unreasonable conduct by itself to be deemed unconscionable it is quite sufficient when that conduct involves deliberate wrongdoing.

The newly amended prohibition on unconscionable conduct now makes it clear that the statutory prohibition against unconscionable conduct is not limited by the common law concept of unconscionable conduct.  The amendments also make clear that inherent systems or patterns of such conduct are prohibited, whether or not an individual is disadvantaged by the alleged behaviour. The focus, therefore, is on conduct which may offend good conscience, whether or not a "victim" is involved.  Importantly, there is now no distinction between consumer and business transactions in the factors the court may have regard to for the purpose of determining whether conduct is unconscionable.

A clause in a contract can also be declared unconscionable, even if there was no unconscionable conduct in the way the contract was signed. For example the Victorian Supreme Court has held that a clause in the fine print of a contract that created an onerous obligation was unconscionable.

Therefore, given the weight of discussion, why do FSP’s continue to include transparent ‘deeming’ clauses when that very inclusion seems to labeL  them as unconscionable?

Andrews out of control

Our State Government is out of control - again.  Like 5 year olds having found the lolly jar and woofing without thought, the Premier has no fear about ruining Victoria’s heritage or spending what he doesn’t have plunging us once again into massive debt.

The iconic bathing boxes are but a further example of his lack of a history led vision. 

How about Andrews turning an internationally recognised St Kilda ‘go to’ icon into a tram stop.  Acland street has gone and so has the history because some idiot thought it appropriate to build a tram super stop  a hundred meters or so from the already existing super stop outside Luna Park.  This is lunacy and vandalism of our history. 

How about Andrews giving $10m to destroy the last inner Melbourne sand-belt ‘peoples’ golf course being Sandringham.  A public course for over 80 years and what should have been treated as a national icon and lauded as a traditional test of golf.  One of his excuses was that women couldn’t play golf on a normal course and needed a shorter course.  This in itself is sexist and demeaning.  The course should have been treated with respect and with professional grounds people creating excellence.  Not so.  Sandringham golf course is now bulldozed and another slice of our history gone with it. 

How about permits being issued from the State Government at odds with the local council to destroy 2 Victorian mansions at 23 Brighton Road St Kilda and replacing them with 17 by 2 story dog boxes thereby also creating access nightmares .  How about wasting $1.2b of our money by NOT building something being the East West link which will have to be built anyway.  This is lunacy!  And, where is the money coming from to fund all the spending?  This is a big question!!

History proved that Cain / Kirner sent us nearly broke and smashed our international credit rating  – “ Ms Kirner was, of course, a senior member of a deeply dysfunctional government [Cain] which presided over the Pyramid, Tricontinental, State Bank and Victorian Economic Development Corporation financial disasters which undermined the state’s economy and saddled the government with a significant debt burden.” [Australian] – The damage was massive and it seems nothing has changed.

The world wants to impeach Trump before he destroys it.  He is a laughing stock as is Andrews amongst anyone who actually thinks.  Neither are funny.  Perhaps we can impeach Andrews?

How about a proper parliamentary enquiry into ‘our’ finances? 

How about Heritage Victoria actually doing something to preserve our history and planning decisions being transparent before the event? 

How about so called ‘developers’ locked up for frenetic night time demolition of historic buildings? 

How about ‘real’ public debate on contentious issues not just so called consultation ‘after’ the event has been actioned?

Kennett had to rescue us the last time from an out of control government including their unions who were also at their dysfunctional worst.  Think how many tram strikes, power blackouts and sheer angst we had to put up with before Kennett.

Now, who is going to challenge Andrews?

I hope someone will step up.