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Overview of the decision
Responsible lending obligations are a central aspect of the regulation of consumer credit under the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act). While responsible lending is subject to regulatory guidance from ASIC and a reference guide from AFCA, there have been limited instances where the provisions have been carefully assessed by the Courts.
In Australian Securities and Investments Commission v Money3 Loans Pty Ltd (No 3) [2025] FCA 1086 (ASIC v Money3) the Federal Court of Australia delivered a highly anticipated decision on the scope of the responsible lending provisions in the NCCP Act.
The Federal Court of Australia's reasons reinforce that the responsible lending regime is principles-based rather than prescriptive. A licensee's obligation is to act reasonably"in the circumstances known at the time".1 It is not to conduct an exhaustive forensic exercise or achieve a "counsel of perfection".2
Background and legislative context
Money3 offered "Micro Motor" loans of up to $8,000 (plus fees) to consumers whose income could comprise up to 100 per cent government benefits. ASIC's case focussed on six borrowers who quickly experienced hardship following the entering into of such loans.
Part 3-2 of the NCCP Act obliges a credit provider, before entering a credit contract with a consumer, to:
- make an assessment as to whether the contract with be unsuitable3;
- make reasonable inquiries and take reasonable steps to verify the consumer's financial situation4; and
- not enter into a credit contract, or increase the limit of an existing credit contract, if the assessment indicates the contract is unsuitable.5
Overlaying the specific responsible lending obligations is a credit provider's general obligations which includes the obligation to ensure credit representatives are adequately trained and take reasonable steps to comply with the credit legislation.6
Key findings
The Court found that Money3 failed to make reasonable inquiries about the living expenses of the consumers and failed to verify these. This was found to be in breach of section 128(d) and 130(1) of the NCCP Act.
A number of other pleaded breaches were not established. The Court:
- was not satisfied that Money3 failed to undertake an unsuitability assessment as required by section 129 of the NCCP Act;
- was not satisfied that Money3 failed to assess the credit contracts as unsuitable, where it should have, and entered into credit contracts where the contract was unsuitable under sections 131 and 133 of the NCCP Act;
- was not satisfied that Money3 failed to meet general conduct obligations of a licensee in respect of representative's training and compliance.
The Court's reasoning
Assessment v inquiries – two distinct limbs
The Court drew a sharp conceptual line:
- The inquiry / verification under s 130 is an information-gathering obligation. There is no obligation to understand the purpose for which a consumer seeks credit.
- The assessment under s 129 is the evaluative judgement involving a prediction as to the future and the assessment is "a binary decision".9
A failure to conduct adequate inquiries under section 130 doesnotautomatically invalidate an assessment under section 129. The assessment need only address the two statutory limbs in s 131(2):
- the consumer's ability to repay without substantial hardship; and
- whether the contract meets the consumer's requirements/objectives.10
In making this point, McElwaine J held:11
'The making of an assessment is distinct from the inquiry and verification process.'
Reasonableness is circumstance-specific
Justice McElwaine rejected any notion that the NCCP Act mandates an exhaustive scope of enquiries to be made or any sources as being mandatory:12
'...s 130 does not operate to require that reasonable inquiries must be exhaustive or that, because further inquiries could be made, any failure to do so is a breach of the obligation...reasonableness is not a counsel of perfection, does not require the elimination of all risks and does not require that all possible steps must be taken. Nor does s 130 require that all reasonable inquiries and steps must be taken.'
In assessing whether a licensee has met the requirement of reasonable inquiries and steps, consideration should be given to what measures could and should a reasonable licensee have taken in view of the magnitude and probability of risk, the cost and practicality of precautions and competing responsibilities.13
Bank statements and living expenses
Money3's internal policy allowed credit analysts to default to a "minimum living expense" table when a borrower's declared expenses were lower than the amounts set out in that table. The Court accepted ASIC's position that, in respect of the particular borrowers considered in the case, analysts did not make reasonable inquiries about the requirements and objectives or the financial situation of the consumers. However, the Court emphasised that:
- the NCCP Act does not universally require licensee to obtain declared living expenses or undertake inquiries about every expense item of a consumer; and
- declared expenses may legitimately differ from prior discretionary spending.
Key takeaways
ASIC v Money3 is a timely reminder that responsible lending is ultimately about reasonableness, judgement and record-keeping, and is not a formulaic exercise. The priority is designing frameworks that support credit officers to make situationally appropriate inquiries and to record, concisely, why the information they rely on is credible. Conversely, credit providers should resist "tick-box" compliance - they must engage with real-world lending behaviours and be able to justify policies against the NCCP Act's consumer-protection purpose.
Footnotes
1. ASIC v Money3 at [29].
2. ASIC v Money3 at [73].
3. NCCP Act, ss 128(c) and 129.
4. Ibid, ss 128(d) and 130.
5. Ibid, s 133. Section 131 sets out when a credit contract must be assessed as unsuitable.
6. Ibid, s 47(g).
7. Ibid at [65] citing Australian Securities and Investments Commission v Westpac Banking Corporation [2020] FCAFC 111; (2020) 277 FCR 343 (Westpac) at [117] (Gleeson J).
8. In respect of the likely ability of a consumer to comply with the consumer's financial obligations under the contract and the likelihood that the contract will meet the consumer's requirements or objectives. See ASIC v Money3 at [24]-[27].
9. Ibid at [27].
10. Ibid at [24]-[29].
11. Ibid at [59].
12. Ibid at [73] (original emphasis) citing Australian Securities and Investments Commission v Firstmac Ltd [2024] FCA 737 at [50]-[51] (Downes J).
13. As formulated by Mason J in Wyong Shire Council v Shirt [1980] HCA 12; (1980) 146 CLR 40 at 47-48.
14. ASIC v Money3 at [89] citing Westpac at [138]-[139].
15. Ibid at [89]-[90] citing Perram J's famous observation of eating "wagyu beef...washed down with the finest shiraz" in Australian Securities and Investments Commission v Westpac Banking Corporation [2019] FCA 1244; (2019) 139 ACSR 25.
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.
