Bank Told To Reform Indigenous Lending

Sydney Morning Herald

Tuesday January 15, 2008

Joel Gibson Indigenous Affairs Reporter

AS AUSTRALIA'S banks face criticism for independent interest rate rises, the National Australia Bank has been forced to reform its lending practices to remote indigenous communities after the corporate regulator found a sample of its borrowers were ill-informed and unable to repay their loans.

After discussions with consumer advocates, the Australian Securities and Investments Commission reviewed a random selection of 25 loans granted by the NAB to indigenous borrowers in Far North Queensland. It found many were ignorant of terms and conditions and could not service the debt.

The NAB, which has the only bank branch on Thursday Island in Torres Strait, would now "tailor its lending practices in recognition of the special needs and circumstances of borrowers in regional and remote indigenous communities", the commission said.

It will send a mobile bank to remote communities to better explain loans to borrowers, introduce "refined eligibility criteria which take into account factors associated with life in remote parts of Australia, such as higher living costs", translate some of its materials into local indigenous languages and review the loans that were the subject of the commission's initial review.

The NAB was the first bank to lift interest rates this month, independently of a rise by the Reserve Bank. Its 0.12 percentage point rise last week was followed by 0.2 percentage point rises by the ANZ and St George which the Treasurer, Wayne Swan, called excessive.

It will be the second big bank to reform lending practices to Aboriginal communities as a result of commission investigations. The Commonwealth Bank undertook to review its lending practices in 2006 after a review found some borrowers were "overcommitted and unable to afford the repayments" as a result of the bank's eligibility criteria and discrepancies in some loan applications submitted by brokers.

Consumer advocates in Queensland say the NAB loans are the tip of a larger problem in Torres Strait and Cape York, where a lack of branches and poor financial literacy lead indigenous people to sign up for loans without understanding them fully.

Most loans are for less than $20,000 and are used for cars. Most borrowers are welfare-dependent.

Hardship becomes acute when borrowers sign up with short-term, high-interest or "payday" lenders charging exorbitant rates that were only recently capped at 48 per cent by the Queensland Government, Robert Barry, of the Indigenous Consumer Assistance Network in Cairns, said.

"Our clients are often the high-risk clients and not eligible for bank loans, so they end up with the high-interest lenders. It's quite a big problem here," he said.

The tightening of funding for Community Development Employment Projects, as well as unforeseen maintenance costs and interest rate rises, had caused remote borrowers to default on loans, he said.