Seven primary issues considered by the court 11 min read
In a recent decision, the Federal Court of Australia concluded that Money3 Loans Pty Ltd (Money3) contravened its responsible lending obligations on a small number of car loans by failing to make reasonable inquiries about the requirements and objectives, or financial situation of six consumers who borrowed to buy used cars, and failing to subsequently take reasonable steps to verify their financial situation before conducting an unsuitability assessment.
ASIC's responsible lending allegation was one of seven primary issues raised against Money3, with ASIC failing to establish each other alleged contravention. The judgment noted that ASIC had 'succeeded in very limited respects', criticised its presented submissions as 'difficult to analyse' and that 'working through the ASIC case to prepare [these] reasons has consumed an inordinate and disproportionate amount of the judicial and administrative resources of the Court'.
The case has been adjourned to receive submissions about relief.
This Insight unpacks the case and highlights the seven primary issues considered by the court.
Key takeaways
The lengthy judgment navigates multiple issues raised by ASIC in relation to six consumers.
As well as highlighting to the regulator the importance of clarity and conciseness in bringing a claim, of note were the court's findings that:
- utilising an internal matrix or standard to assess unsuitability, rather that utilising HEM (or a similar benchmark) will not render an unsuitability assessment unsound. Where a lender deals with a cohort of customers that are not 'typical' (in this case, Centrelink recipients that could not obtain finance from larger institutions), HEM is not necessarily an appropriate benchmarking tool; and
- applying an internal matrix should only occur after making reasonable inquiries and taking reasonable steps to verify a consumer's financial situation. Money3 failed to meet these obligations. It did not review consumers' bank statements and transaction statements to determine and verify declared expenses before applying the default amounts in its internal matrix.
Background
In a 212-page judgment delivered on 5 September 2025, the court considered proceedings brought by ASIC against Money3 for:
- contraventions of the responsible lending provisions in ss128, 130(1), 131(1) and 133(1) of the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act); and
- contraventions of the general conduct obligations in the NCCP Act by:
- failing to ensure Money3's representatives were adequately trained and competent to engage in the relevant credit activities; and
- failing to take reasonable steps to ensure that Money3's representatives complied with the credit legislation (relevantly, the responsible lending obligations).
Money3 is a provider of consumer automotive finance and personal loans, including a 'Micro Motor' product, offering consumer loans of up to $8000 for secured products (Micro Motor Loan).
Between May 2019 and February 2021, ASIC alleged that Money3 contravened its responsible lending obligations in relation to five Micro Motor Loan contracts entered into with six consumers. ASIC claimed that, at the time of entering the contracts, each consumer was in 'precarious financial circumstances'. Each was unemployed and relied on government payments or child support for income.
Four of the consumers were indigenous single mothers and several lived in community housing. ASIC alleged that shortly after entering the contracts, each consumer suffered financial hardship.
Each consumer was introduced to Money3 via a broker. Each contract involved the provision by Money3 of an $8000 principal loan to purchase a second-hand vehicle, plus approximately $3000 in financed application fees, broker fees and insurance warranties (add-on fees). The interest rate at the time the contracts were made was 24.95% per annum.
A key aspect of ASIC's case was that Money3 utilised internal documents, setting out features, conditions and lending criteria of the Micro Motor loan, when assessing each consumer's finance application. These were referred to as 'Product Guides' and each guide included a minimum living expense amount.
Primary issues
The court distilled ASIC's case into seven primary issues:
- Issue 1: whether Money3 made reasonable inquiries about each of the six consumers' requirements and objectives, or financial situation, and took reasonable steps to verify their financial situation, before making an assessment of unsuitability.
- Issue 2: whether Money3 failed to make an assessment within 90 days before the credit day which specified the period the assessment covered or assessed whether the contract would be unsuitable for the consumer.
- Issue 3: whether Money3 was required to:
- inquire whether the consumers wished to obtain finance for an application fee, broker fee and extended warranty insurance in addition to the price of the vehicle and, if so, whether it make this inquiry; and
- obtain a signed/completed statement from the consumer that set out in full their financial situation and likely expenses and, if so, whether it did.
- Issue 4: whether Money3 failed to assess the credit contracts as unsuitable for each of the consumers because it was likely each would be unable to comply with their financial obligations or could only do so with substantial hardship, or the contract would not meet the consumers' requirements or objectives because the amount financed included add on fees.
- Issue 5: whether Money3 contravened the NCCP Act by entering into credit contracts with the consumers in circumstances where the contracts were unsuitable for those consumers.
- Issue 6: whether Money3's representatives were adequately trained and were competent to engage in the credit activities authorised by the credit licence.
- Issue 7: whether Money3 took reasonable steps to ensure its representatives complied with their obligations under the NCCP Act in respect of the credit contracts for each of the consumers.
How did the court analyse these issues?
The ASIC case succeeded in very limited respects.
Issue 1: Did Money3 contravene s128(d) and s130(1) of the NCCP Act?
The court concluded yes. In considering this issue, the court examined the obligation in s130(1) to make reasonable inquiries about a consumer's requirements and objectives, and financial situation, and to take reasonable steps to verify a consumer's financial situation. ASIC relied heavily on the Explanatory Memorandum as providing guidance about how to interpret this provision, submitting that:
Money3 must, as part of its obligations under s130, understand the purpose for which consumers seek the credit and determine whether the proposed credit contract meets that purpose. Money3 must also make reasonable inquiries about consumers' variable expenses.
The court directly rejected ASIC's submission, observing that 'what is notable about the submission is how the guidance of the Explanatory Memorandum is transformed into mandatory obligations'.
Justice McElwaine confirmed that there is no requirement in s130(1) for a lender to understand the purpose for which a consumer seeks credit; the purpose is to obtain information about the consumer's requirements and objectives in relation to the credit contract and the consumer's financial situation.
There is also no prescriptive list of matters in s130(1) to which a lender must have regard, with Justice McElwaine correctly noting that ASIC's reliance on the Explanatory Memorandum is inconsistent with the decision in Australian Securities and Investments Commission v Westpac Banking Corporation [2020] FCAFC 111 (Westpac), which concluded that it is up to the lender to determine the scope of inquiries to satisfy s130(1). Westpac also noted that the NCCP Act does not contain an express statement that a lender must use a consumer's declared living expenses on making an unsuitability assessment.
Ultimately, Justice McElwaine accepted Money3's submission that (our emphasis):
…s130 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. That must follow from [my] earlier general analysis that reasonableness is not a counsel of perfection, does not require the elimination of all risks and does not require all possible steps to be taken. Nor does s130 require all reasonable inquiries and steps to be taken…. the inquiry in this case must focus on what a reasonable licensee in the position of, and informed by the known characteristics of, Money3 at the time would do in the circumstances.
Turning to ASIC's primary submission, it alleged that Money3, having received bank transaction data for each consumer for the 90-day period prior to the application date:
- failed to make any inquiry into the amount of each consumer's living expenses by reference to these bank transactions; and
- failed to use the transaction data to verify each consumer's declared living expenses.
ASIC submitted that the inquiries and verification obligation required Money3 to reconcile discrepancies between a consumer's declared living expenses and what was evident in the bank statements. The question for the court was whether this step would have been undertaken by a reasonable licensee in the position of Money3 at the time.
In answering this question, the court referred to an 'Analyst Guide', in which its purpose was stated as 'to be consistent with [the] responsible lending practices' and contained instructions for how to calculate minimum weekly expenses and emphasised the importance of a consumer's bank account conduct. The court also referred to Money3's Credit Policy, which stated that bank statements should be used by analysts to verify expenditure items, confirm a consumer's declared expenses and to identify any undisclosed expenses or concerning transaction patterns.
The court concluded that Money3 contravened its responsible lending obligations under s128(d) and s130(1) in respect of the six consumers because Money3's credit analysts did not follow its own policy documents that required the analysts, as part of its responsible lending processes, to review consumers' bank statements and transaction data to determine expense amounts and verify declared weekly expenses before applying default minimum amounts in the Money3 product guide. To do so would only have required the performance of a 'very simple calculation'. To that end, Justice McElwaine commented that:
Reasonable inquiries may not require a reconstruction of expenses [from the bank statements] but they at least required some comparison between declared expenses and the data that was available.
Issue 2: Did Money3 contravene s128(c) and s129 of the NCCP Act?
The court concluded no. ASIC submitted that Money3's serviceability assessment applied 'arbitrary expense amounts' from the Product Guides for dependents and weekly expenses, which were not based on the consumer's own financial situation and bore 'no rational relationship' to the minimum expenses of each consumer. ASIC, via its expert, attempted to argue that a reasonable and prudent lender would have used HEM as a validation tool, and that the use by Money3 of its internal benchmarks was inappropriate in the context of the unsuitability assessment.
The court disagreed and concluded that the use of Product Guides to assess unsuitability, rather than utilising HEM (or another similar benchmark), did not amount to a failure by Money3 to conduct an unsuitability assessment. Whilst HEM was available as a tool, the NCCP Act does not require it be used and does not preclude the use of alternative external benchmarks or different methodologies. Further, the use of HEM would not necessarily be appropriate for the type of consumer in question (Centrelink recipients who could not obtain finance from larger institutions). There was no evidence before the court that a reasonable lender in Money3's position would have used the HEM benchmarks in the same circumstances.
Issue 3: Did Money3 contravene s130(1)(a) and s130(1)(c) of the NCCP Act?
The court concluded no. ASIC's primary contention was that Money3 was obliged but failed to inquire whether the consumers wanted to finance the add-on fees. Money3 accepted this in submissions but argued that the add-on fees were included in each credit contract sent to a broker. At that point, it was open to each consumer to fund the add-on fees from their own resources, and by implication request an amendment to remove the add-on fees from the amount financed. Further, where a consumer directed their broker to request finance for the add-on amounts, Money3 argued it should be entitled to rely on an instruction from the broker to this effect.
The court agreed with Money3, finding that Money3 had clearly specified to consumers, in the contract sent to their broker, that finance would be provided for the add-on fees as well as the principal loan amount. It was reasonable to expect the broker, as the consumer's agent, would communicate the proposed finance package to the consumer and where no objection was received, no further inquiry was warranted. The court held that ASIC did not establish that, acting reasonably, Money3 was required to do anything else to confirm that the consumer wanted to finance the add-on fees.
Issues 4 and 5: Did Money3 contravene s131(1) of the NCCP Act?
The court concluded no. ASIC contended that Money3 had access to information about the consumers, including Centrelink statement, credit checks and bank statements and, had Money3 made 'reasonable inquiries and undertaken reasonable verification', it would have known the consumers were in a precarious financial position. The failure to do so meant Money3 failed to assess the credit contract as unsuitable, in breach of s131(1).
The court disagreed and found there was no evidence that had further information been sought or considered, the assessment would have found the contract to be unsuitable. There was no consistent evidence from bank statements that consumer debits exceeded their credits (eg recurring expenses, debits, etc.).
Issue 6: Did Money3 contravene s47(1)(g) of the NCCP Act?
The court concluded no. ASIC contended that Money3 failed to take reasonable steps to ensure its representatives were adequately trained and were competent to engage in the relevant credit activities. ASIC sought to argue, through its expert, that Money3's practices were not consistent with the expectations of a 'reasonable and prudent lender'. In particular, it was argued that training materials contained 'generic content that lacked adequate explanation', which were 'not updated to reflect relevant case law' and which instructed representatives to rely on the minimum living expense figures in the Money3 Product Guide rather than to properly consider the minimum expenses of the consumer.
Aside from criticising the expert's failure to identify or articulate practices of reasonable and prudent lenders, or provide reasoning as to why Money3 fell short of such practices, the court found that Money3 provided training to its representatives, including placing new representatives with experienced officers for teaching, completion of training modules and attendance at training courses, regular team meetings and 'huddles' to discuss issues, and regular audits. Notwithstanding training materials were drafted at a high level, they provided practical guidance to representatives and needed to be considered alongside the context of practical training and experience.
Issue 7: Did Money3 contravene s47(1)(e) of the NCCP Act?
The court concluded no. ASIC contended that Money3 had failed to take reasonable steps to ensure its representatives complied with their obligations under the NCCP Act. ASIC based its arguments on factors such as the policy and procedure documentation being drafted and approved by business managers, rather than risk and compliance staff; policy documentation not being reviewed and updated at regular intervals; and those in governance roles not receiving appropriate training to identify risk and compliance issues. The court disagreed, considering this issue alongside Issue 6 and finding against ASIC for the same reasoning set out above.
Conclusion
The Federal Court's decision reinforces that a lender's approach to responsible lending must be reasonable, and ultimately a lender must not make unsuitable loans. Where a lender uses procedures to guide its responsible lending approach, it is crucial that these are followed in order to avoid a potential contravention.