Review Questions 71.docx
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Review Questions 71.docx
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ReviewQuestions71
FIN2108ReviewQuestions7.1
Reviewquestions7.1
7.1.1PleaseAttemptQuestions1,4-9ofthechapter7discussionquestions(SathyeText).
7.1.2Whocanenteracontractandwhatformofidentificationisparticularlyusefultothelenderwithrespecttocontractlaw?
Why?
7.1.3Whatinformationcanabankgivetoacreditreportingagency?
7.1.4Givetwoexamplesofinstanceswherelegislationmayrequireabanktodiscloseacustomer’sconfidentialinformationundercompulsionoflaw.
7.1.5Acustomerhas$15000unsecuredoverdraftwiththeirbank.InFebruarythecustomerasksthebanktoholdavaluableantiqueonasafe-custodybasis.Itisvaluedat$50000.Inthefollowingmonth,thecustomerdeclaresbankruptcy.Hisaccountisdrawntothe$15000limit.Canthebankholdtheantiqueasbanker’slienandsellittorecoverthedebt?
7.1.6Consideracaseofdefaultonapropertyinwhichtheamountofthedebtisgreaterthanthevalueoftheproperty.Discusstheadvantages/disadvantagesofforeclosureversussaleofthepropertyunderthemortgagedeedusingexamplestoillustrateyourpoints.
7.1.7Whatisaguarantee?
Canaguarantorbereleasedfromanagreement?
DoeshavingaguarantoraffecttheLVRofarealestateloan?
7.1.8Withregardtobanking,whatistherighttoset-off?
7.1.9On2May2012,theCommonwealthAttorney-General,NicolaRoxon,announcedproposedamendmentstothePrivacyAct1988.Listsomeoftheamendments.
Chapter7
Security,consumercreditlegislationandlegalaspectsoflending
Solutionstodiscussionquestions
Q1.Whatarethevariouslegalaspectsthatalendingofficermusttakeintoaccountbeforeaconsumerloanisapproved?
A.Variouslegislationsaffectconsumerloans.Theseinclude:
∙Contractlaw:
Lendermustensurethattheprospectiveborrowerhascapacitytocontract.Aprospectiveborrowerwhoisnotaminor,notapersonofunsoundmindandnotanadjudgedinsolventcanenterintoaloancontract.
∙PrivacyLaw:
ConsentoftheprospectiveborrowermustbeobtainedunderthePrivacyAct1988.ThisActimposeslimitsonthedisclosureofpersonalinformationbycreditreportingagenciesandspecifiesthecircumstancesinwhichtheinformationcanbereleased.
∙TheNationalCreditCode:
BasedontheNationalConsumerCreditProtectionAct2009,thecodeappliestoallcreditprovidedtoindividualdebtorsandstratacorporationsforwhollyorpredominantlypersonal,householdordomesticpurposesortopurchaseorrenovateresidentialproperty,wheneveranytypeofchargeismadeforcreditregardlessoftheamountlentorinterestratecharged.
∙TheCompetitionandConsumerAct2010(previouslyTradePracticesAct1974)regulatestheconductofthebusinesscommunitysoastoencouragefairdealingatalllevelsofbusiness.
Q4.Whatisunconscionableconduct?
Howisitdifferentfromdeceptiveconduct?
Unconscionableconductreferstoharshorunfairbehaviourbyastrongerpartyoveraweakerpartythroughimpositionofunreasonabletermsornondisclosureofconditions.Ingeneral,unconscionableconductresultsinfinancialbenefitforthestrongerpartytothedetrimentoftheother.Itisasortofcoercion.
Forexample,abankmayimposeharshconditionsonasmallbusinessborrowersuchasanexcessivelyhighinterestratebecausetheborrowerisinadesperatesituation.
Howcanabankavoidunconscionableconductcharges?
SuggestionsbytheACCC,include:
∙Useplain,uncomplicatedlanguagewhenadvertisingtoawiderangeofconsumers.
∙Donotuseharshoroppressivetermsinagreementsorcontracts—particularlytermsthatarenotnecessarytoprotecttheinterestsofthebank,
∙Clearlysetoutallkeytermsoftheagreement
∙Makefullandfrankdisclosure—thismeansensuringthebankcustomerisawareofandunderstandsthekeytermsoftheagreement.
∙Avoidhighpressuresalestactics—therearelimitsonhowfarabankcangotomakeasale.
∙Haveaneffectivecomplainthandlingsystem
∙Bepreparedtonegotiateandsetasidethecontractifrequired–especiallyifitappearsthatthebankoroneofitsemployeesmayhaveengagedinanyformofunconscionableconduct.
Deceptiveconductmeansmisleading.Anyinformationprovidedbyabanktoacustomerthatismisleadingcouldleadtoachargeofdeceptiveconduct.Itmakesnodifferencewhetherthebankintendedtomisleadordeceive-itishowtheconductofthebankaffectedacustomer’sthoughtsandbeliefsthatmatters.
Iftheoverallimpressionleftbyanadvertisement,promotion,quotation,statementorotherrepresentationmadebyabankcreatesamisleadingimpressioninacustomer’smind-suchastotheprice,valueorthequalityofanygoodsandservices-thentheconductislikelytobreachthelaw.
Forexample,acustomermaybeledtobelievethatabankwillextendthemloanfundsinthecaseofaloancommitment,butthebankmaythenrefusetolendthefundsbecauseofatechnicalityinthefineprintwhichisactuallymisleading.
TheAustralianSecuritiesandInvestmentCommission(ASIC)istheconsumerprotectionregulatorforfinancialproductsandservices.ASIChaspowerstoprotectconsumersagainstmisleadingordeceptiveandunconscionableconductaffectingallfinancialproductsandservices.
Q5.WhoadministerstheTradePracticesAct1974inAustralia?
WhataretheimportantprovisionsofthisActthatalendingofficershouldconsider?
Withregardtothefollowinginformation,pleasenotethaton1January2011theTradePracticesAct1974wasrenamedtheCompetitionandConsumerAct2010.
TheAustralianCompetitionandConsumerCommission(ACCC),jointlywiththevariousStateandTerritoryregulators(eg.QueenslandOfficeofFairTrading),administerstheCompetitionandConsumerAct2010,
Themostcommonlyused(mostlitigated)sectioninanyAustralianstatutehasbeenSection52oftheTradePracticesAct1974:
Acorporationshallnotintradeorcommerceengageinconductthatismisleadingordeceptiveorislikelytomisleadordeceive.
∙TheActgenerallyappliesiftheclaimisforlessthan$50,000.
∙Athree-yearlimitappliestoalldamagesclaimsundertheAct.
∙FromabankingperspectiveitdealswithissuessuchasUnconscionableConductandDeceptiveconduct.
Q6.‘Banker’slienisagenerallien’.Doyouagreewiththisstatement?
Howdoesbanker’slienhelpthebankerinrecoveringdues?
Lienmeansarighttodetain.However,banker’slienispeculiarinasmuchasitconfersonthebankerthepowertoselltheasset.Banker’slienisageneralliensinceitextendstoallsecuritiesthatcomeintothebanker’shandsintheordinarycourseofbanking.
Thesecurityoverwhichthebankerhasliencan’tberecoveredbytheborroweruntilthefulldebtoutstandingisrepaid.Thusagenerallienentitlesthebankertoretainthepropertyasasecurityforpaymentofthefullindebtednessoftheownerirrespectiveoftheaccountonwhichitmaybedue.
Itisdifferentfromaparticularlien,whichentitlestheholdertoretainthepropertytillpaymentoftheparticularexpenditureforwhichthelienwasobtained.
Q7.WhatlegislationenactedbytheCommonwealthGovernmentseekstoprohibitdiscrimination?
A.TheCommonwealthGovernmentlegislationthatprohibitsdiscriminationinclude:
∙AffirmativeAction(EqualOpportunityforWomen)Act1986
∙TheDisabilityDiscriminationAct1992
∙TheEqualEmploymentOpportunity(CommonwealthAuthorities)Act1987
∙TheHumanRightsandEqualOpportunityCommissionAct1986
∙TheHumanRights(SexualConduct)Act1994
∙ThePrivacyAct1988
∙TheRacialDiscriminationAct1975
∙TheRacialHatredAct1995
∙TheSexDiscriminationAct1984.
∙TheAgeDiscriminationAct2004
Thislegislationpreventsthedenialofservicestoanyonesolelybecausetheapplicantbelongstoadifferentreligion,sex,sexualorientation,race,age,ornationality.Itisdesignedtoensurethateveryonehasarighttoafairgo.
Q8.ExplainthesalientfeaturesoftheAustralianBankingIndustryOmbudsman’srole(NowtheFinancialOmbudsmanService).
TheFinancialOmbudsmanServiceisadisputeresolutionauthoritybetweenbanks(andotherfinancialserviceproviders)andcustomers.TheServiceisfreeofchargeforApplicants.ThecostsoftheServicearemetbytheFinancialServiceProviders.
Ithasbeenfoundthatmajorityofthebank-relatedcomplaintsrelatetohomeandconsumerloansandareaboutexcessive,inappropriateorwrongfeesorinterestratesordelayinloanapprovals.Theyalsorelatetowrongcalculationofrepaymentandinterestorabouttermsofloan.
TheOmbudsmancan,broadlyspeaking,investigatemattersthatinvolvepersonalorsmallbusinesscustomers(orguarantorsofsmallbusinessdebt),andclubsandbodycorporates.ThemattersmustbebroughttotheOmbudsmangenerallywithin6yearsfromwhenthefinancialinstitutionwasfirstnotified(inwriting)oftheproblemandmustinvolvenomorethan$280000.
Tobeeligible,themattermusthavearisenasaresultofanerroronthebank’spart,ortheomissionofanactbythebankthatoughttohavebeendone.Itcan’tbeadisagreementaboutthebank’sgeneralpracticeorpolicy.
TheOmbudsmanisanalternativedisputeresolutionprocess,onlyavailabletocustomerswhohavealreadyattemptedtoresolveadisputewiththeirownbank.ThetermsofreferencespecificallyexcludetheOmbudsmanfromdealingwithcompaniesassociatedwithbanks,suchastheirfinancearms.
TheOmbudsmanhasthepowerto:
1.determinewhetheramatterfallswithinhistermsofreference;
2.makeanawardupto$280000which,ifacceptedbythecustomer,isbindingonthebank;
3.obtainthebankfileofacustomerandaccessanynecessary
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