We copied this from COSL Case History File on PREDATORY LENDING.  The case highlights why asking for a mortgage from a NON BANK LENDER is deadly high risk territory........................

This is the problem with COSL: 

Facts of the case

The complainants responded to an advertisement by the financial services provider, a broker, who professed to specialise in bad credit loans. They were looking to refinance their existing home loan and borrow a little extra to convert their garage into another bedroom.

Their existing loan was in arrears and they were about to lose their home. The complainants were both unemployed and on Centrelink payments, with four children and another on the way. The Broker was aware of this.


Nonetheless, the Broker arranged two new loans for them one for $110,000 at 8.95% (plus 3% on default) and the other for $72,317 at 23.60%. The loan was repayable in twelve months and was substantially more than the amount the complainants initially sought. As it turned out, most of the increase was attributable to inflated broker commissions and legal costs.

The complainants signed the loan agreement on the broker's assurance that they would be able to refinance the loan at the end of the term with a loan that had lower repayments, fees and charges.

The Broker sought and received a statement from the complainants to the effect that Affordability won’t be problem. We also confirm that it is still only a 12 month loan. All fees and charges have been disclosed to (us). This was dictated to them. On settlement of the loans, the financial services provider helped himself to $13,225 in brokerage fees and $1,200 in consultant’s fees.

The complainants defaulted on their very first repayment, as the new repayments were twice the amount of their previous repayments. The Lender predictably sought possession.

Financial Service Provider's Position

Despite our every effort to conciliate, attempts at resolution failed due to the broker's inflexibility. The Broker was adamant that he was not at fault. The matter was eventually referred to the Credit Ombudsman for a Determination.

Our Position

The Credit Ombudsman considered that the Business Purpose Declaration was ineffective under the Credit Code, given that the broker knew or had reason to believe that the purpose of the loan was not for business, but to refinance a home loan. Furthermore, the lack of a Finance Brokers Agreement entitled the complainants to recover the commission they paid to the Broker.

The Credit Ombudsman found against the broker (the Lender was not a COSL scheme participant) under several heads of law and awarded the complainants compensation in an amount equivalent to the broker's commission, the Lenders legal fees (so far that it exceeded what was reasonable) and other disbursements associated with setting up the loan.  

The Ombudsman also found that the financial services provider had acted unconscionably as he would have been aware that the complainants:

·         were not sophisticated in financial affairs

·         had defaulted on their previous loan

·         were anxious, if not desperate, to avoid losing their home

·         were unemployed and in receipt of Centrelink payments.

The Resolution

The Ombudsman determined that the broker took unconscientious advantage of his position as their agent by arranging a loan for the Complainants: 

·         that required repayments of more than double those of their existing loan;

·         that was significantly larger than their previous loan, primarily because of the excessive broker commissions and lender fees charged;

·         that significantly reduced the equity in the value of their home from 32% to 15%; and


·         that was secured over their only asset, their home.