The Unconscionable Conduct and Subprime Lending in Australia

Abstract

The global financial crisis is strongly linked to unsuitable subprime loans or non-confirming loans that have been provided by various organisations, and subsequently high levels of defaults have occurred and continue to occur. It is therefore important to understand the characteristics and evolution of subprime lending to determine its potential basis for unconscionable conduct actions. There are three main purposes of this article. Firstly, the article provides an Australian perspective on the current global financial crisis, in an attempt to separate fact from fiction. The focus of this article is on the Australian experience of the subprime crisis, not the US situation. It is disturbing to note that a number of publications have not understood these differences, and have attempted to apply the US situation to Australian experiences. The application of US experiences to Australia is misleading, and any resulting principles or views are of questionable value. For this reason, it is critical that there be further research into the situation from an Australian perspective. Secondly, the article examines the potential causes of action available to victims of unconscionable subprime loans, focusing specifically on the doctrine of unconscionable conduct. This involves an analysis of the development of the unconscionable conduct regime, with a focus on the tests for special disadvantage and situational disadvantage. This concept has a strong association with the provision of exploitative subprime loans, and this connection should be explored further in light of the drastic consequences of inappropriate subprime loans. Thirdly, the article provides a critique of the recent legislative reforms in the areas of consumer credit and financial services. This section also makes suggestions for law reform to adequately respond to the challenges posed by the global financial crisis and the victims of inappropriate subprime lending.