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BFCSA investigates fraud involving lenders, spruikers and financial planners worldwide.  Full Doc, Low Doc, No Doc loans, Lines of Credit and Buffer loans appear to be normal profit making financial products, however, these loans are set to implode within seven years.  For the past two decades, Ms Brailey, President of BFCSA (Inc), has been a tireless campaigner, championing the cause of older and low income people around the Globe who have fallen victim to banking and finance scams.  She has found that people of all ages are being targeted by Bankers offering faulty lending products. BFCSA warn that anyone who has signed up for one of these financial products, is in grave danger of losing their home.

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BFCSA: Victory break-through for Victims of LOW DOC SCAMS

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27 May 2013  Article by Chloe Wallace of   DibbsBarker

 Note from BFCSA:  All Lenders with Low Docs using identical model: $150 billion of TOXIC LOANS - same as Schmidt.  

APRA, Treasury, RBA, ABA, AOFM, ACCC and ASIC bleats "no systemic issues!"  Corruption at Work

Focus:

Violet Home Loans Pty Ltd v Schmidt & Anor [2013] VSCA 56

Services:

Financial Services, Disputes & Litigation

Industry Focus:

Financial Services

In Violet Home Loans Pty Ltd v Schmidt & Anor,1 the Victorian Court of Appeal found that where a mortgage introducer has provided fraudulent details on a loan application, a mortgage originator may be guilty of unconscionable conduct where it was aware of irregularities in a loan application but made no effort to investigate them.

Facts

In 2004 Manfred Schmidt, a pensioner, obtained a line of credit facility for $190,000 from Perpetual Trustees Australia Limited (Perpetual), and provided a mortgage over his home as security for the facility.

Violet Home Loans Australia Pty Limited (Violet) was the mortgage originator and manager, and processed the loan application on behalf of Perpetual. The purpose of the loan was to invest in what Mr Schmidt thought was a property development in Carrum. He was deceived into doing so by Ian Maddocks, who was eventually convicted of fraud.

Mr Maddocks arranged a "Low Doc" loan for Mr Schmidt from Perpetual and prepared the loan application and income declaration. The documents contained false information regarding Mr Schmidt's employment and his annual income. Mr Schmidt did not provide the false information, but signed the documents without reading them.

A Violet credit officer reviewed the application and noted several discrepancies, including different annual incomes being provided ($65,000 and $75,000 in different parts of the application), and requested an ABN on the basis that Mr Schmidt's self-employed income was over $50,000. The application form was subsequently amended and resubmitted showing an income of $49,000, and accordingly no ABN was provided. Again, Mr Schmidt signed the application form without reading it.

Most of the money advanced was paid directly or indirectly to Mr Maddocks and was lost. The debt to Perpetual eventually exceeded $450,000.

The question before the Court was, who should bear the loss - Mr Schmidt, or Violet Home Loans Pty Limited (VHL), that company having effectively indemnified Perpetual for any loss sustained by reason of Violet's conduct.

Supreme Court proceedings

At first instances, the trial judge found that Violet had acted unconscionably. The Court ordered that Mr Schmidt pay Perpetual approximately $85,000, being the amount that Mr Schmidt owed on an existing mortgage that was discharged using the Perpetual loan. An order was also made that VHL indemnify Perpetual.

The trial judge formed the view that Mr Schmidt was vulnerable in the sense that he was unsophisticated, naïve and lacked financial knowledge. The Court found that Violet did not act in good faith and could have, being aware of the inconsistencies in the two loan applications, made further enquiries of Mr Schmidt's capacity to repay the debt.

Appeal

The Court of Appeal upheld the decision of the trial judge, noting the following:

1.   Mr Schmidt was not knowingly responsible for the inclusion of false information.

2.   The absence of the Violet credit officer as a witness was not properly explained, and this was unsatisfactory.

3.   The mortgage manager was advised of three different figures for Mr Schmidt's annual income, but did not request any further details or confirmation. The mortgage manager could have made enquiries into Mr Schmidt's true capacity to repay the debt but did not, and by "turning a blind eye" to the discrepancies in the application form it acted unconscionably within the meaning of s12CB of the Australian Securities and Investments Commission Act 2001 (Cth).

4.   Violet was aware that Mr Schmidt's property was his only substantial asset. However, the Court noted that whether or not the lending was asset-based or not, the fact that the mortgage manager made no effort to investigate the discrepancies in the application was unacceptable. In fact, the judgment indicated that a finding of asset-based lending on its own may not be sufficient to determine conduct as "unconscionable":

5.   ... we do not find it of assistance to consider whether conduct is unconscionable simply because of the type of lending that is involved, for example, asset based lending. Rather, the task requires a more synthesised approach which takes into account all of the facts relevant to the impugned conduct and determines whether, in all the circumstances, that particular conduct is unconscionable.2

5.   Although not necessary to decide, the Court determined that s51AC of the Trade Practices Act 1974 (Cth) did not apply. The Court declined to make a determination in relation to whether or not the conduct was unconscionable at general law.

Conclusion

This decision sends a warning to financial service providers to ensure its officers make reasonable enquiries with respect to any apparent inconsistencies in information provided in support of a loan application.

Footnotes

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

 

http://www.mondaq.com/australia/x/241420/Financial+Services/Financial+services+provider+guilty+of+unconscionable+conduct+turning+a+blind+eye+to+inconsistencies

 

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Comments

  • Denise
    Denise Monday, 27 May 2013

    Does this mean that FOS and COSL will re-open all their files on the basis that court authority recognised the argument of agency - broker the agent of the bank or lender/manager.....whichever applies? Yes indeedy! Time to open the vaults chaps. Definitely, not as the EDR's and ASIC suggested: that the broker is the agent of the borrower victim. We told you so in 2009. Appeal Judges know best.........ASIC better get used to this. Army of consumers advancing - ready to tear down the walls of corruption in Low Doc Loan Scams. [email protected]

  • doyla66
    doyla66 Monday, 27 May 2013

    Yippeeeeeeeeeeeeeee!

  • doyla66
    doyla66 Tuesday, 28 May 2013

    It would be interesting to know how the funds were raised for the Supreme and the Appeals Courts and if Mr Schmidt was self represented.
    This is the type of breakthrough and evidence that we have been looking for. Surely when we ask the banks to negate our loans and they fail to do so, we can inform them politely of this particular case.

    If this ruling applies to one State it should apply to all. This is the appeals court decision.
    The judgement of this case should set a precedent for other cases of the same category in all States.

  • doyla66
    doyla66 Tuesday, 28 May 2013

    Excellent to read that the Law recognises that the borrower is cannot be held accountable and is not liable for the broker/originator/loan manager/credit assessor errors! of course this is commonsense - now it's Law, again, after appeal upheld, again.
    I hope ASIC read the part about "turning a blind eye" in the context of their own ASIC Act 2001!
    ASIC will not get away with their "we can see nothing" routine any longer.
    There are many thousands of cases that occurred in a similar manner.
    Re-open the cases ASIC, FOS, COSL and all the rest of the "regulators" of our banking and lending industry.
    Get enough of these errors together and the pattern of systemically "turning a blind eye" emerges.
    I call it fraud as it is widespread, intentional and the motivation is so very obvious.
    Government, Opposition, bureaucrats, legislators, regulators, ombudsman services: until you have "skin in the game" you lack the motivation to get this right. That's why BFCSA have to keep doing your job for you: eyes wide open.
    Our Banks have blood on their hands, they have committed crimes, they have robbed the country that helped them, they rob our country by rorting the tax system. Our public service is blind and corrupt. ASIC's reputation for laxity is being discussed around the world.
    Our judiciary has the picture as more cases go through court. Banks will be forced try to compensate the losses of those whom they have robbed over the years of regulatory hopelessness.
    Must the people enforce the Law, one case at a time, over how many years?
    What will that cost our country over how many years?
    Who would ever trust a Bank or a Broker after this?
    Royal Commission into Banking and Finance - widest possible terms of reference.

  • doyla66
    doyla66 Tuesday, 28 May 2013

    Quantum Leap

    Another quantum leap well fuelled by Denise.

  • doyla66
    doyla66 Tuesday, 28 May 2013

    Fantastic News! Another brilliant story brought to us by Denise......now let the fun begin ;)

  • doyla66
    doyla66 Tuesday, 28 May 2013

    Wow.... this looks like a big step forward to me! it puts the responsibility where it belongs - with the instigators and not the victims.

  • doyla66
    doyla66 Tuesday, 28 May 2013

    This is excellent news. Broker agent of the lender. I hope Nab are taking notice of this court appeal. I think Nab need to take notice of my accusations in regards to acting fraudulently. Sneaky gangsters always denying that they have acted imprudently. What a joke Nab are. No wonder their reputation is so dodgy . Hope the other judges now take note of todays decision. Justice will be done eventually. Loved to read this blog. It gives one hope.

  • doyla66
    doyla66 Tuesday, 28 May 2013

    Gee I hope this Ruling also applies to the crooked Bank Managers who doctored the facts to force us into taking loans they knew we couldn't repay. The Manager told me don't worry about your income; "this Loan is an Asset Lend". BFSO found Maladministration but but didn't award any Compensation...called it a Business Decision. We are still paying the loan because of the CBA's corruption.

  • doyla66
    doyla66 Wednesday, 29 May 2013

    As I can now finally understand... we all need to FIGHT TO BE HEARD ON OUR MAIN ISSUE.. which is... OUR LOANS SHOULD NEVER HAVE BEEN APPROVED IN THE FIRST PLACE by the Lenders. The fraudulent documentation we have since discovered on our LAF's is just another thing.

    We are entitled to be reimbursed all the interest , fees, brokers commissions and other charges that the Lenders gained by approving these imprudent loans... just so the Banksters could reach their SALES TARGETS

  • doyla66
    doyla66 Wednesday, 29 May 2013

    I agree, Change. Before BFCSA I challenged the Bank as to why the loan was approved. Once I learned about the LAF I had a better idea of how the loan was approved. None of mine should ever have been approved if the Bank had been doing what it led APRA, ABA, ASIC and the Australian parliament to believe it was doing. Very clearly it wasn't. My home loan situation bears a strong resemblance to the Victorian appeal case. This gives me more hope of a sensible outcome.
    Reimbursements could also include up front cost of LMI plus legal costs of mortgage and default.
    I still don't accept that the so-called lender should be able to keep any profit from our home loan contract: their profit is in the investment end of the deal and the contract is paid out/clean sale. If ASIC don't handle the entire fraud appropriately it will have long term repercussions for Australian legal justice reputation and Law enforcement.

  • doyla66
    doyla66 Wednesday, 29 May 2013

    Couldn't agree more Lisa,our loan should never have been approved either,the blind freddies that took our case to court were only there to prove the fraud of the broker,and agency.
    They never looked at the issue that we had defaulted on our loan.It was a simple case of repossession and was turned into a three ringed circus,with ASIC as the ringmasters,and we are lumbered with a loan that is double what the courts we were responsible for because the clown of a lender decided to add 7 years of $150 default fees to the loan.
    For the record ASIC were given everything in a complaint,and I got the same response as everyone else seems to get.
    Too many elephants in the room.

  • doyla66
    doyla66 Thursday, 30 May 2013

    Our loan also should never have been approved. Our monthly repayments were $7,000 - who can afford this on an income of $23,000.
    Buffer loans should be illegal - they have a short life and are a trap for the banks to take our homes when the buffers run out.
    Asic are pretending to be ignorant of this but they know exactly what's going on.
    This conspiracy to steal homes must be stopped immediately.
    Royal Commission PLEASE into banking and finance sector with widest terms of reference.

  • doyla66
    doyla66 Thursday, 30 May 2013

    Banks should not have approved my loans because unbeknownst to me at the time i was already in debt. But apparently
    projected equity is enough reason for them to get you into even more debt.
    Buffer loans are there to fool you into thinking you have enough equity that's why the loans
    are approved..BUT THE BANKS KNOW DIFFERENT!! they lend you 80% of pretend equity.(because they know a bust is coming)
    Then sit back and laugh all the while preparing to suck you in again.

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