Costs, Comparison Rates and 2026 Rules
Responsible lending in Australia: what 'not unsuitable' means for your personal loan
How NCCP Act Chapter 3 responsible lending works for personal loans, what lenders must check, your right to see the assessment and what to do if a loan was unsuitable.
Under Chapter 3 of the National Consumer Credit Protection Act 2009, a lender must not give you a personal loan that is unsuitable for you. Before entering the contract, it must make reasonable inquiries about your requirements, objectives and financial situation, take reasonable steps to verify your financial situation, and assess whether you could meet the repayments without substantial hardship. A loan is unsuitable if you would likely be unable to repay it, or could only repay it with substantial hardship, or if it does not meet your requirements and objectives. You can ask the lender for a written copy of its assessment, and if it gave you an unsuitable loan you can complain to AFCA.
This guide is part of the personal loan requirements and comparison rates overview. It is general information, not legal advice.
Who the obligations apply to
The responsible lending obligations apply to holders of an Australian credit licence (and their representatives) when they:
- provide credit (lenders), or
- provide credit assistance — suggesting or helping you apply for a particular loan (brokers and some retailers), or
- increase a credit limit.
They apply to regulated consumer credit: credit to individuals mainly for personal, domestic or household purposes, or for residential investment property. Business loans are generally outside them. Since 10 June 2025, buy now pay later providers are also covered, with modified obligations for low cost credit contracts; see buy now pay later rules.
The three steps lenders must take
| Step | What the law requires | What it looks like in practice |
|---|---|---|
| 1. Reasonable inquiries | Ask about your requirements and objectives, and your financial situation | Purpose of the loan, amount, term, income, expenses, debts, dependants, expected changes |
| 2. Reasonable verification | Take reasonable steps to verify your financial situation | Payslips, bank statements, credit report, tax returns, Centrelink income statements |
| 3. Assessment | Assess whether the contract would be unsuitable | Comparing income with expenses and repayments, using buffers and benchmarks |
Brokers have equivalent obligations: they must make inquiries, verify, and make a preliminary assessment that the loan is not unsuitable before suggesting it or helping you apply. Brokers also must act in your best interests when giving credit assistance about home loans; that duty applies to mortgage brokers rather than personal loan brokers generally.
ASIC's Regulatory Guide 209 (Credit licensing: Responsible lending conduct) explains how ASIC expects these steps to be carried out. The inquiries and verification are "scalable": more is expected where the loan is larger, riskier or the consumer more vulnerable.
When a loan is presumed unsuitable
Section 131 of the NCCP Act says a contract must be assessed as unsuitable if, at the time of assessment, it is likely that:
- you would be unable to comply with your financial obligations under the contract, or could only comply with substantial hardship, or
- the contract will not meet your requirements or objectives, or
- other circumstances prescribed by the regulations apply.
If the only way you could repay would be by selling your principal place of residence, you are presumed to be in substantial hardship unless the contrary is proved. For small amount credit contracts there are further rules, including a protected earnings limit: total SACC repayments in a repayment period cannot exceed 10% of your income after tax withholding.
What "substantial hardship" means in practice
The Act does not define it. Common signs include needing to borrow again to make repayments, skipping essentials such as rent, food or medicine, or relying on the sale of assets you need. The courts have confirmed that the law does not prescribe one method for the assessment: in the Westpac case (2020), the Full Federal Court held that lenders are not required to use declared expenses in a particular way. The core obligation, however, remains: not to lend if the loan is unsuitable.
Worked example (illustrative)
A borrower earns $4,200 a month after tax, has rent of $1,700, other living expenses of $1,500 and a car loan repayment of $450.
- Income minus expenses and existing debt: $4,200 − $1,700 − $1,500 − $450 = $550 a month.
- A new $20,000 five-year loan at 11.5% costs about $440 a month.
- The surplus after the new loan would be $110 a month.
A lender would likely question whether $110 is enough buffer for irregular costs and whether the expenses are realistic. It might approve a smaller amount, require the car loan to be paid out, or decline. See how much can I borrow for the buffer arithmetic.
Your rights
- Credit guide. Licensees must give you a credit guide with their licence number, fees and complaints details (including AFCA).
- Copy of the assessment. You can ask for a written copy of the lender's suitability assessment. If you ask before the contract is entered into, or within a set period afterwards, the lender must provide it within the time the Act allows.
- Credit proposal disclosure. Brokers must disclose fees and commissions before giving credit assistance.
- Complaint. If you believe the loan was unsuitable, complain to the lender first and then to AFCA. Possible outcomes include waiving interest and fees, but each case depends on its facts.
When responsible lending did not protect you
Common complaint patterns include loans approved despite bank statements showing gambling, payday loans or repeated dishonours; credit card limit increases that pushed repayments beyond income; and debt consolidation loans approved without closing old cards. If this sounds familiar, read hardship notices and the complaints and free help guide, and use the personal loan checklist for future applications.
Frequently asked questions
Can a lender ask to see my bank statements?
Yes. Verifying your financial situation is part of its obligation, and bank statements are a common way to do it. Some lenders use secure data-sharing services with your consent.
Does responsible lending mean the lender is responsible if I can't pay?
Not automatically. The obligation is to make reasonable inquiries, verify and not enter an unsuitable contract. If the lender met those obligations based on accurate information, you are still bound by the contract, but you can apply for hardship assistance.
Did the government remove responsible lending laws?
A 2020 proposal to remove most responsible lending obligations for consumer credit did not pass Parliament. The obligations in Chapter 3 of the NCCP Act continue to apply.
Do responsible lending rules apply to loans from family or friends?
No. They apply to licensed credit providers and credit assistance providers, not to private informal loans.
Sources and where to check
- ASIC — Regulatory Guide 209 and responsible lending guidance
- Federal Register of Legislation — National Consumer Credit Protection Act 2009, Chapter 3
- ASIC Moneysmart — what lenders check
- Australian Financial Complaints Authority — complaints about unsuitable lending
