Reviewing the literature on consumer lending with emphasis on current developments

The “Australia and New Zealand Banking Group Limited (ANZ)” is recognized as the fourth largest bank in terms of the market capitalization in Australia. The Australian operators are seen to make up for the majority of the value in the business. It has been further identified that in several cases the ANZ bank is identified as the most potential bank as it is able to be among the most sustainable bank globally in the 2008 (Au.finance.yahoo.com. 2017). 

The report is intended to show the relevant aspects of the different types of the considerations which has been seen to be based on reviewing the literature on consumer lending with emphasis on current developments. The discussions of the study will be further able to depict the relevant issues relating to consumer lending by banks. The various types of the issues identified through the literature review to the consumer lending business of ANZ bank has been related in the study. The latter part of the report has been able to analyze the consumer lending products and services of the assigned bank in terms of the literature. The report has further shown the comparison of the consumer lending products and services of ANZ with Westpac (Yates 2014).

The consumer loans are normally considered for the various types of the needs for the personal and household needs. Some of these include furniture, electrical appliances, home and travel, boats and homes. Some of the consumer loans have been further considered based on the finance consumption. Some of the main categories of the consumer lending has been categorized as per purpose, terms, tenure of repayment and security. The purpose of the consumer loans has been seen in terms of the houses, motor vehicles and holidays. The short-term loans are of 1year, medium term loans are of 1-3 years and the long term consumer lending are considered which are more than 3 years. The evaluation of the consumer loans has been seen in terms of character (loan purpose, borrower integrity, individual track report and repayment ability), Capacity to repay repay (job stability, borrower’s margin net income etc) and the collateral. The various terms of the repayment has been seen in terms of the installment loans for the purpose of the emergency and repaid in a single lump sum. The security has been seen to be based on the secured and the unsecured loans. The personal loans have been seen to be categorized based on the 2-5 years of monthly installments. The personal loans are seen to be mainly negotiated with the bank. Various banks are further seen to offer credit cards as an efficient means of doing credit transactions. Some of the main form of the consumer benefits has been identified in terms of the low credit card fees, no procedural hassle, financial freedom, monthly salary and convenience. Some of the main forms of the benefits provided to the card holders have been seen in form of managing relatively higher risk adjusted on the returns, large market shares, increased form of the interest rate, price insensitive customer and the various options for the expansions of the services. The trends in the credit card lending has been seen in terms of  only 50% of the available credit being used and the personal lending has been seen in terms of sustained growth and motor vehicles consumables (Ali et al. 2015).

Identifying relevant issues relating to consumer lending by banks

It is important that any individual who intends to engage in the credit activities needs to be licensed under “Australian Securities & Investment commission” as per the National Credit Act. As per the law the credit providers may not agree to enter into the contract in case an individual has been identified insufficient to repay as per the contract requirements. The precautions in granting o the credit has been seen in terms of proper signing of loan documents, information withheld overcommitted borrower and meticulously abiding by the credit policy of the bank.  Some of the various types of the other considerations which need to be made in the field of the consumer lending has been further seen in terms of the making reasonable inquiries on the financial situation and the various types of the objectives and the requirements of the lending activities. Before entering into any sort of contract which is associated to consumer lending consumers needs to take into account various financial system which may be subject to misconduct. At the time of investing, it has been seen that consumers have suffered significant amount of losses which are uncompensated especially during collapse of non potential financial institutions and financial service providers (Liu and Roca 2015). Due to the collapse of financial institution the consumers have suffered significant losses in cases such as Trio Capital, Westpoint, Storm Financial and Opes Prime. In several occasions, it has been seen that consumers have received only partial compensation and a major portion demand uncompensated. The main issues of the consumer lending are mainly due to non-adequacy of regulatory framework for different as managing investment schemes and relevancy of compensation mechanisms. A significant loss, has been faced from investing in managed investment sector and some of the major sources of the losses identified in terms of agricultural schemes, unlisted mortgages common enterprise scheme and various team property buying (Fsi.gov.au. (2017). 

An article published by an article published by Sarah Danckert in 2016, revealed how ANZ had to compensate its clients for frauds in loan consumer lending sector. In order to compensate for the losses ANZ had to compensate for a total of nine consumers were misrepresented as internal employees to the tune of $2.6 million without placing any report to the corporate regulator. A deeper analysis into the home loan sector of the ANZ revealed that the bank was alleged for rigging bank bill swap rate and had adapted to various types of the toxic cultures with the bank’s traders.  During the hearing of the bank which took place in November 2016, it was revealed that the bank was subjected to various types of lender mortgage fraud. It was since 2011, that ANZ has been subject of nine files related to the internal lender fraud and cases of misrepresentation. It has been further revealed that ANZ was required a total provision of $ 2.6 million in order to compensate for the loss amount (Danckert 2016).

The bank has been involved in conducting sweeping o the reviews or all its different types of the home loan products. Some o the errors associated to the consumer home loan section has been further traced back to 2003 because the bank had carried out manual disbursement procedure, there leaving the possibility for human error. In 2010 a customer complaint alerted the bank for offsetting of the accounts, which resulted in a review done by PwC for tenure of four years. It has been further discerned that in majority of the cases the issue of offsetting the accounts were fixed, however the customer didn’t receive their money in time.  This has led to reduced trust in terms of consumer lending in home loan department in Australia (Yeates 2014).

Relating the issues identified through the literature review to the consumer lending business of ANZ bank

The consumer lending products and the services of the ANZ bank has been segregated in terms of six broad categories namely home loans, Overdraft Facility, Personal Lines of Credit, Investment Home Loans, small loans and personal loans. It has been clearly specified that any consumer looking for home loan needs draw the entire amount of the loan within a period of six months from the date of the offer for the home loan product. In case the date of advance does not fall in this specified time period then the contract with ANZ will come to end and the bank shall not be obliged to advance the loan. In case of the overdraft facility, if any one of the accounts is seen to be overdrawn then the bank is liable to charge the applicable rates for its services. The various types of the transaction fees, ATM operations and any sort of the approved overdraft may not be fully agreed by the bank’s terms and conditions. It has been further seen that the bank offers various types of options for insurance during the consumer lending process consumer lending process (Marston and Shevellar 2014). This has been mainly seen in case any customer is willing to buy credit facility for motor vehicles and ANZ banks offer their customers to do a General Insurance for the same. In this way the bank is entitled to offer various types of the dedicated services which are seen to be particularly useful for the consumer lending products. In case of any sort of the loans which has been taken for the agricultural purposes the consumer are also provided with the option of doing a agricultural insurance for the crops (Fairtrading.nsw.gov.au. 2017).

In Australia ANZ and Westpac are considered among the big four banks as most borrowers consider their services completely safe in nature. The main comparison parameters of the lending services has been done based on credit cards, home loans, personal loans, savings accounts, home insurance, travel insurance and car insurance. Both ANZ and Westpac is seen to offer a broad range of services for the credit cards, including low fee cards, rewards cards, low rate cards and premium cards (Liu et al. 2016). ANZ has low rate platinum and low rate credit card which has a purchase rate of 11.49% and requires a balance transfer of 0% for the first 16 months and then 21.74% thereafter. Westpac on the other hand offers the consumer with a purchase rate of 0% for 6 months and 13.49% thereafter. Similar to ANZ, the Westpac bank’s low rating visa card requires a balance transfer of 0% for the first 18 months and then 13.49% thereafter (Canstar 2017).

It has been further discerned that both the banks offer a broad range of the home consumer lending, with fixed and variable loan rates. In case an individual is seen to consider ANZ home loan at a variable rate, then the present rate of interest payable is 4.03% in simplicity plus P&I. The comparison rate for the same has been observed to be 4.04%. In case an individual is seen to consider Westpac home loan at a variable rate such as special Flexi First Option P&I 3 yrs, the present rate payable is 3.99%. The comparison rate for the same has been seen to be 4.49%. Another variable home loan product of ANZ named “Breakfree Variable P&I 80% 500k+” is seen to offer 4.30% as the present rate of interest and 4.69 as the comparison rate. On the other hand Westpac also offers similar consumer lending products such as “Flexi First Option P&I” at 4.59% and “Premier Advantage Rocket Repay Home Loan P&I 500-749k” at 4.39%. The minimum current rate for the home loans offered by ANZ has been observed to be 10.99%, on the contrary, the personal unsecured loan’s minimum current rate is 12.99% at present. ANZ is further seen to be offer unsecured home loan at a variable rate of 15.99% (Xiang et al. 2014).

Analysis and comparison

A large number of current regulations regarding reformations and numerous others regarding the capital norms, leverage ratios and the stress tests have resulted in uncertain industry environment for banks. The regulatory pressure is imposing a greater degree of negative cost on the banks. This is ultimately creating an adverse impact on the growth of credit sector and it is prohibiting banks from taking a active part in the sustainable economic recovery. Banks are therefore recommended to administer their risks at the time of providing basic regulatory framework which will prevent the banks from taking excessive amount of risk-taking by the banks. The regulatory regimes of the banks need to be balanced between the need to maintain the sustainable speed of economic growth and assuring that there is a free and fair environment for the banks to leverage new technologies of data processing. This will ultimately help the bank in meeting the growing regulatory compliance for the banks. It is recommended that banks willing to penetrate through the credit activities should enquire in to the financial situations, objectivity and requirements. Banks must be well aware regarding the term period of the interest that is applicable in the products of consumer lending.

Conclusion 

The discussions of the study have been able to put an augmented focus on the consumer lending services. It has been seen consumer loans has been mainly seen in terms of the houses, motor vehicles and holidays. In addition to this, it has been further discussed that the short-term loans are of 1year, medium term loans are of 1-3 years and the long term consumer lending are considered which are more than 3 years. The various terms of the repayment has been seen in terms of the installment loans for the purpose of the emergency and repaid in a single lump sum. The discourse of the assessment has also highlighted how due to the collapse of financial institution the consumers have suffered significant losses in cases such as Trio Capital, Westpoint, Storm Financial and Opes Prime. In several occasions, it has been seen that consumers have received only partial compensation and a major portion demand uncompensated. The relevance of the same has been showed with ANZ Bank in terms of how the bank had to compensate its clients for frauds in loan consumer lending sector especially in home loans. The comparison of the products of ANZ and Westpac has shown how ANZ is slightly better for offering consumer lending services.  

References

Ali, P., McRae, C.H. and Ramsay, I., 2015. Payday lending regulation and borrower vulnerability in the United Kingdom and Australia.

Au.finance.yahoo.com. (2017). ANZ.AX Profile | ANZ BANK FPO stock – Yahoo Finance. [online] Available at: https://au.finance.yahoo.com/quote/ANZ.AX/profile?ltr=1 [Accessed 2 Jul. 2017].

Canstar. (2017). ANZ vs Westpac – Review, Compare & Save | Canstar. [online] Available at: https://www.canstar.com.au/providers/anz-vs-westpac/ [Accessed 2 Jul. 2017].

Danckert, S. (2016). ANZ reveals home loan fraud issue in inquiry submission. [online] The Sydney Morning Herald. Available at: https://www.smh.com.au/business/banking-and-finance/anz-reveals-home-loan-fraud-issue-in-inquiry-submission-20160324-gnqpr8.html [Accessed 2 Jul. 2017].

Fairtrading.nsw.gov.au. (2017). [online] Available at: https://www.fairtrading.nsw.gov.au/pdfs/About_us/Resolving_issues/Responsible_lending_RIS_2008.pdf [Accessed 2 Jul. 2017].

Fsi.gov.au. (2017). Other significant consumer issues | Financial System Inquiry. [online] Available at: https://fsi.gov.au/publications/interim-report/06-consumer-outcomes/other-significant-issues/ [Accessed 2 Jul. 2017].

Liu, B. and Roca, E., 2015. What drives mortgage fees in Australia?. Accounting & Finance, 55(3), pp.861-880.

Liu, M.H., Margaritis, D. and Qiao, Z., 2016. The Global Financial Crisis and Retail Interest Rate Pass-Through in Australia. Review of Pacific Basin Financial Markets and Policies, 19(04), p.1650026.

Marston, G. and Shevellar, L., 2014. in the shadow of the welfare state: the role of payday lending in poverty survival in Australia. Journal of Social Policy, 43(1), pp.155-172.

Xiang, D., Worthington, A., Higgs, H. and Annual, C.I., 2014. The Consumer Implications of Interest Rate Pass-Through in Retail Mortgages. Consumer Interests Annual, 60.

Yates, J., 2014. Protecting housing and mortgage markets in times of crisis: a view from Australia. Journal of Housing and the Built Environment, 29(2), p.361.

Yeates, C. (2014). ANZ review after glitch forces $70m in home loan refunds. [online] The Sydney Morning Herald. Available at: https://www.smh.com.au/business/banking-and-finance/anz-review-after-glitch-forces-70m-in-home-loan-refunds-20140129-31m3z.html [Accessed 2 Jul. 2017].