The application of payday loan underwriting criteria in Australia has come under increased attention following a recent Federal Court verdict. Legal analysts have been motivated by the case to consider whether present evaluation procedures sufficiently safeguard borrowers while guaranteeing lenders fulfill their legal duties.
Significant shortcomings in evaluating borrower ability were found in the September 2025 ruling against Money3 Loans, especially for six clients whose main source of income was Centrelink benefits. The court did not declare the loans to be inappropriate, even though it acknowledged that the lender had violated responsible lending regulations.
As authorities increase their control and advocacy organisations demand more robust protections in a market valued at an estimated $1.3 billion, the conclusion has sparked a wider conversation about compliance requirements throughout the consumer credit industry.
Court Identifies Verification Shortcomings
Between May 2019 and February 2021, Money3 provided car loans to six individuals who depended largely or entirely on Centrelink payments. The loan structure followed a consistent pattern: $8,000 for a second-hand vehicle purchase plus approximately $3,000 in financed application fees and insurance warranties. Interest rates were set at 24.95% per annum.
The Federal Court determined Money3 failed to make reasonable inquiries about each borrower’s living expenses using their bank statement transaction data. In one instance, the lender also failed to properly inquire about a borrower’s requirements and objectives. These procedural failures constituted clear breaches of the National Consumer Credit Protection Act’s responsible lending obligations.
The court rejected the Australian Securities and Investments Commission’s broader allegations. The judgment found insufficient evidence that Money3 failed to assess whether the loans were unsuitable or that the company neglected to train its representatives adequately. The court noted ASIC succeeded only in “very limited respects.”
This distinction carries substantial implications for future enforcement actions. While lenders must conduct genuine inquiries about borrower circumstances, proving completed loans were fundamentally unsuitable requires meeting a higher evidentiary threshold.
Disputed Standards for Expense Assessment
Central to ASIC’s case was Money3’s reliance on internal “product guides” that specified minimum living expense figures for loan assessments. The regulator contended these standardised figures bore no relation to borrowers’ actual living costs.
The Federal Court disagreed. ASIC had not proven the figures were arbitrary or that Money3 should have used industry benchmarks like the Household Expenditure Measure. This aspect of the judgment disappointed consumer protection advocates who view standardised expense assumptions as enabling unsuitable lending to vulnerable populations.
The ruling leaves open questions about what constitutes adequate expense verification. While lenders cannot ignore actual borrower circumstances, the judgment suggests some use of reference figures may be permissible within a broader assessment framework.
Broader Impact on Affected Communities
The six consumers featured in the court case represent a fraction of those affected by similar lending practices. Financial counselling organisations report assisting numerous Money3 customers over recent years. Many describe circumstances that mirror the court cases: broker-facilitated loans and vehicles that broke down shortly after purchase.
Data from the Indigenous Consumer Assistance Network indicates the majority of people impacted by these lending practices are First Nations peoples living in regional and remote Australia with limited access to mainstream credit options. For these communities, unreliable transport creates cascading hardships affecting employment and healthcare access.
The court’s finding of breaches validates concerns raised repeatedly by consumer advocates about systemic issues in the second-hand car finance sector.
Intensified Regulatory Action
The Money3 case forms part of a sustained enforcement campaign that accelerated throughout 2024 and 2025. ASIC’s March 2025 report revealed concerning trends in the payday loan sector. Some lenders may be breaching consumer protection laws by shifting vulnerable borrowers from small amount credit contracts into medium amount credit contracts with fewer protections.
The statistical evidence is striking. Small loan credit contracts fell from 80% of all loans in the December 2022 quarter to less than 60% by August 2023. This rapid shift suggests lenders discovered they could charge higher fees and interest by guiding borrowers just over the $2,000 threshold that separates small amount credit contracts from medium amount credit contracts.
Current enforcement actions extend well beyond Money3:
- Civil penalty proceedings against Ausfinancial Pty Ltd (trading as Swoosh Finance) for alleged breaches of responsible lending obligations
- $16 million in penalties secured against Ferratum Australia for multiple National Credit Act contraventions
- Federal Court action against Sunshine Loans over prohibited fee structures
These coordinated enforcement efforts signal that responsible lending compliance has become a regulatory priority with particular focus on products targeting financially vulnerable consumers.
Market Evolution and Regulatory Response
Australia’s small and medium loan market has experienced substantial growth over the past decade. The sector’s total value reached $1.3 billion in 2023-24, up from approximately $400 million annually in 2014. Research by the Consumer Action Law Centre documented 4.7 million individual payday loans written over three years to July 2019.
This growth occurred alongside increasing financial pressure on Australian households. National Australia Bank research revealed that one in ten Australians facing financial hardship accessed payday loan products during 2023. These products became the third most common debt type used to manage financial stress.
The regulatory framework has evolved in response to documented consumer harm. The Financial Services Reform Act 2022 introduced enhanced protections for small amount credit contracts. These reforms aim to minimise financial harms and provide vulnerable consumers with greater safeguards.
However, the documented shift toward medium amount lending suggests some market participants may be adapting business models to operate in less regulated product categories. This pattern of regulatory avoidance represents an ongoing challenge for consumer protection.
Compliance Requirements for Lenders
The Money3 ruling establishes clear expectations for loan assessment procedures while leaving some questions unresolved. Lenders cannot rely on generic expense estimates or internal benchmarks without verifying actual borrower circumstances through comprehensive data analysis.
Essential compliance elements identified in the ruling include direct verification of living expenses using bank statement transaction data and documentation of inquiry processes. Clear communication of all loan terms and systematic identification of potentially vulnerable borrowers are also required.
Financial institutions are reviewing their verification processes in light of these requirements. The judgment clarifies that responsible lending obligations demand substantive assessment rather than formulaic approaches.
Consumer Rights and Alternative Options
Licensed lenders must comply with responsible lending obligations that prohibit providing credit where borrowers cannot reasonably afford repayments without substantial hardship. These protections exist in law and establish clear standards that transcend individual lender policies.
Consumers considering credit options should understand their right to request detailed information about affordability assessments. Where expense calculations appear unrealistically low, borrowers can challenge these assessments.
Alternatives to high-cost short-term credit continue expanding. The No Interest Loan Scheme provides loans up to $2,000 without interest or charges for low-income Australians. Eligibility depends on income rather than credit history. Similar programs include StepUP loans and Good Shepherd Microfinance initiatives that prioritise financial inclusion over profit maximisation.
Industry participants like MeLoan have emerged offering transparent approaches to short-term lending. Consumers benefit from understanding all available options before committing to any credit product. MeLoan and similar providers emphasise clear disclosure of terms and conditions.
Key support resources include the National Debt Helpline at 1800 007 007 for free financial counselling and the Indigenous Consumer Assistance Network for First Nations peoples. The Australian Financial Complaints Authority provides dispute resolution services.
Borrowers already experiencing repayment difficulties should contact lenders immediately to discuss hardship arrangements. Early communication often enables workable solutions that prevent defaults and credit report impacts.
Future Outlook
The penalty for Money3’s violations will be decided during an enforcement hearing scheduled for October 2025. The result is anticipated to have an impact on industry compliance and illustrate the repercussions of violating responsible lending obligations. Simultaneously, consumer advocacy groups are advocating for more robust safeguards, and the National Consumer Credit Act’s simplification is being discussed as a reform to better close supervision and enforcement loopholes.
The payday lending industry is currently under increasing strain due to increased regulatory action and persistent lobbying campaigns. Lending standards may be raised by more accountability, but the industry’s reaction will ultimately determine how financially vulnerable Australians may obtain credit. The Money3 lawsuit raises an ongoing dilemma about whether existing rules can both safeguard consumers and preserve access to necessary short-term borrowing. It is one step in a longer journey to promote responsible lending across the credit sector.
