Due to a major Federal Court decision, personal loans are now subject to stricter living expense verification, which is part of a regulatory reset affecting consumer credit in Australia. The ruling clearly shows that the industry is moving toward more stringent enforcement of its responsibilities on responsible lending.
Money3 Loans was determined in September 2025 to have violated responsible lending standards by not properly confirming borrowers’ living expenditures before to authorizing auto finance arrangements. The decision was made during the third quarter of 2025, when Australians took out a record $9.3 billion in fixed-term consumer credit, highlighting the mounting regulatory emphasis on spending verification during a period of increased borrowing activity.
Six loan contracts from May 2019 to February 2021 were examined in this instance. Each borrower got $8,000 in principle for buying a used automobile. The financing amount was increased by about $3,000 to cover the cost of the application and insurance warranty. These contracts were subject to an annual interest rate of 24.95%. A number of borrowers experienced financial difficulties shortly after signing.
Proceedings were initiated against Money3 Loans Pty Ltd by the Australian Securities and Investments Commission. The National Consumer Credit Protection Act of 2009’s responsible lending regulations were allegedly broken, according to ASIC. Although the court dismissed the majority of the accusations, it did find certain violations pertaining to the standards for investigation and verification.
What the Court Found
The 212-page judgment delivered on 5 September 2025 clarified responsible lending obligations under Australian law. Money3 failed to make reasonable inquiries about borrowers’ financial situations and objectives. More critically, the lender didn’t verify living expenses using available bank statement data.
Money3’s assessment process relied on internal guides specifying minimum living expense figures. Credit analysts would default to these benchmark amounts when declared expenses fell below thresholds. The court determined this approach didn’t constitute adequate verification when bank statements showing actual expenditure were accessible but ignored.
The judgment reinforced that responsible lending obligations are principles-based rather than prescriptive. Lenders must act reasonably based on circumstances known at the time. However, reasonable inquiry requires examining actual financial data when readily available. Generic benchmarks alone won’t suffice.
This distinction carries substantial implications for lenders across the consumer credit sector. Banks and non-bank institutions including CashPal must now demonstrate robust verification processes. These processes need to account for individual borrower circumstances rather than relying predominantly on standardised assumptions.
Benchmark Methods Under Question
The court’s findings highlight ongoing debate surrounding the Household Expenditure Measure and similar benchmarks. The HEM provides estimates of typical living costs for different household compositions and income levels. Industry practice has often employed these benchmarks as primary assessment tools.
Lenders would compare declared expenses against HEM figures. They used the higher amount in affordability calculations. The Money3 judgment suggests this methodology may prove insufficient when actual transaction data contradicts benchmark estimates.
The issue gained prominence during the 2017-2019 Royal Commission into banking misconduct. The final report documented widespread reliance on automated systems using standardised expense assumptions. Previous litigation produced mixed judicial guidance on these practices.
Record Borrowing Amid Economic Pressures
The court decision coincides with exceptional growth in Australia’s consumer credit market. Australian Bureau of Statistics data shows new loan commitments reached $9.3 billion in September 2025. Refinancing activity contributed an additional $1.66 billion.
Personal loans have recovered from sharp pandemic-era declines and now exceed pre-pandemic levels. The September 2025 figure marks an all-time high for quarterly commitments.
Market analysis indicates borrowers increasingly use personal loans for essential expenditure rather than discretionary purposes. Consider these patterns:
Loan Application Breakdown:
- Vehicle purchases: 59% of applications (average $34,827)
- Debt consolidation: 23% of applications
- Other purposes: 18% of applications
The Reserve Bank of Australia maintains the official cash rate at 4.10%. This elevated rate environment has increased borrowing costs across all credit products. Average interest rates for unsecured personal loans now reach 13.87% per annum according to market comparison data.
Demographic analysis shows borrowers in their 40s represent the largest cohort at 31% of applicants. Those in their 30s follow at 25%. Average credit scores among successful applicants sit at 782. The typical loan amount is $22,643 with a 35-month repayment term generating weekly repayments of approximately $178.
How Lenders Are Responding
Financial institutions are reviewing and strengthening verification procedures following the judgment. Responsible lending obligations require lenders to complete three core steps before providing credit:
Core Assessment Requirements:
- Make reasonable inquiries about the consumer’s financial situation and objectives
- Take reasonable steps to verify that information
- Assess whether the credit contract would be unsuitable
A loan becomes unsuitable if the consumer cannot make repayments without substantial hardship. It’s also unsuitable if repayments require selling the consumer’s principal residence or if the product doesn’t meet stated requirements.
Lenders including CashPal and other consumer credit providers are implementing enhanced documentation requirements. Applicants can expect requests for comprehensive bank statements covering 90 days or more. Detailed expense declarations and evidence supporting income sources are now standard.
Processing timelines may extend as credit assessment teams conduct more thorough reviews. However, technology solutions are helping maintain service levels. Compared to manual review procedures, automated expense verification systems are able to analyse transaction data more thoroughly.
Regarding complaints about responsible lending, the Australian Financial Complaints Authority has released guidelines. During the 2024–25 fiscal year, AFCA received 2,847 complaints pertaining to loans. An important percentage of these concerns were about responsible lending.
Regulatory Outlook
ASIC is still committed to enforcing responsible lending. One of the key priorities in the regulator’s 2025–2026 Corporate Plan is safeguarding vulnerable customers. Used car finance to consumers on Centrelink payments appears as an enforcement priority.
The Money3 proceedings demonstrated ASIC’s willingness to pursue test cases clarifying regulatory expectations. There will be a punishment hearing on February 26, 2026. The Federal Court will decide what penalties are suitable for the violations that have been found.
Additionally, as of June 10, 2025, responsible lending duties for buy-now-pay-later goods will be extended. Consumer lease providers must comply with stricter regulations, such as requiring a 90-day bank statement verification period. These actions show that consumer protection is still a top priority for regulators.
What Borrowers Should Know About This
Under the National Consumer Credit Protection Act, consumers who are having trouble with their current debts should be aware of their rights. The loan may have been inappropriate from the start if the lender did not do sufficient due diligence or confirm financial information.
Lenders can provide copies of loan application materials and assessment records to borrowers upon request. Complaints may be made via the lender’s internal dispute resolution procedure if verification seems insufficient. Unresolved complaints may be escalated to AFCA for free independent dispute resolution.
Support Resources:
- Free financial counseling is available at the National Debt Helpline, 1800 007 007
- Authority for Australian Financial Complaints (free dispute resolution)
- Financial advisors (examine records and spot irregularities)
- Hardship arrangement negotiation assistance
For prospective borrowers, thorough preparation improves application outcomes. Gathering several months of bank statements helps demonstrate spending patterns. Realistic evaluations of affordability are produced by computing actual monthly costs. Processing is facilitated more efficiently when income paperwork is complete and up to date.
Telling the truth about your financial situation guards against inappropriate loans. Informed evaluation judgments that are advantageous to both parties are also made possible by it.
Looking Ahead
The Money3 judgment establishes clearer standards for living expense verification in consumer lending. The court upheld that responsible lending is founded on principles, but it also confirmed that lenders must look at real financial facts when it is available.
The ruling is made in the midst of historically high borrowing levels and ongoing consumer protection efforts by regulators. Financial organisations are changing their procedures to satisfy higher standards for verification. The improved requirements require more thorough paperwork and offer consumers more protections against inappropriate financing.
The balance between credit availability and consumer protection is crucial as the personal loan market grows toward its anticipated $16.17 billion in 2035. The developing architecture underlying that balance is aided by the Money3 case. Borrowers and lenders alike must adjust to these evolving requirements while preserving access to necessary loan products.
