This presentation is for information only.You must seek legal advice in relation to any particular circumstances.

Fraud Red Flags:

Interaction of fraud and responsible lending obligations

Alexandra Kelly, Principal Solicitor

What do we do?

We are a community legal centre specialising in financial services, particularly in the areas ofconsumer credit, banking, debt recovery and insurance.

We operate four advice lines:

• the National Debt Helpline (NSW) 1800 007 007

• the Financial Counsellors Line (NSW) 1800 650 084

• the Insurance Law Service (National) 1300 663 464

• the Aboriginal Advice Service (National) 1800 808 488

We provide referrals to face-to-face financial counselling services

Available for casework assistance including negotiations, written legal advice and representationin EDR schemes, courts and tribunals in credit, debt, banking & insurance

Betty and the love scammer

• Betty’s daughter falls in love with international doctor online

• Betty’s daughter wants $$ to help him

• Betty’s daughter takes Betty to bank and translates information

• Betty says she doesn’t want a loan

• 5 months later Betty gets a statement and now has a $220,000 reverse mortgage

Betty and the love scammer

Fraud Red Flags

• “Proof of age” card used to establish identity at branch. -

• RMS confirms Betty never had a proof of age card

• $$ was paid into daughters name not Betty

• Justice of the peace witnessed all documents, with substantial errors

• all signatures are forgeries

Sachin and the intermediary

• Sachin earns $3,500 per month

• Sachin owns a car with a trade-in value of $23,000 with finance owing $43,000.

• Sachin’s dealer says he can get him a good deal…..

• Sachin purchases a new car price with a price of $30,000, plus extras of stamp duty, origination fees and some add on insurance.

• Sachin’s new loan is $63,000 over his new $30,000 car.

• Sachin’s payments are now $645.87 per fortnight or $1,291.74 per month.

Sachin and the intermediary

Sachin and the intermediary

Unsuitable Loan Red Flags• Loan to value ratio of 200%

• Defacto not on the loan as a co-borrower but her income was taken into account

• No verification obtained that there is a spouse/defacto- relied on the consumer to sign an acknowledgement

• No lease obtained or verification of rental or security of rental

• Payments are over 30% of the borrowers income

John and his accountants letter

• John is self employed.

• John has 3 children and a wife. They are all dependent on him.

• John is behind in his mortgage and he has just been hit with a big tax debt.

• John sees a mortgage broker to help him refinance

John and his accountants letter

John and his accountants letter

John and his accountants letter

Red Flags

• There is no verification apart from the accountants letter.

• No inquiries are made as to the cost of living of a family of 5

• Reminiscent of the lo doc/no doc loans pre-responsible lending - reliance on accountant certification or self certification of income

Mary and the fake car purchase

• Mary lives in regional NSW, is a Disability Support Pensioner and has a chronic illness.

• Mary needs $4,000 to pay for dental expenses.

• Mary approaches a local broker and sets out her income as the DSP and she owns a car.

• Mary provides bank account statements to broker.

• Mary’s broker advises her to obtain a loan …… he is going to have to set it up as a car loan.

• Mary’s loan is for $8,236:

• $5,000 is paid to a dealership Mary has never heard of; • $1,030 GAP insurance paid to an insurer; • $1,206 Application fee • A commission of $330 is paid to the broker.

• Mary says she only gets $4,000 in hand.

• Mary’s car is encumbered through the PPSR

• Mary’s payments are $137.51 per fortnight.

• Mary can’t afford the loan and defaults on the first payment.

• Mary’s loan is now over $11,000 and they are threatening to repossess Mary’s car.

Mary and the fake car purchase

Declarations

Mary and the fake car purchase

Red Flags

• Mary lists the car as an asset on the application form provided to the broker

• A PPSR search would reveal Mary was always the owner

• A review of Mary’s bank account statements show she had car expenses already

• Mary can’t afford the repayments given the expenses on her bank account statements

Mary and the fake car purchase

Thank you

Alexandra Kelly, Principal Solicitor

alexandra.kelly@financialrights.org.au