When Shahir Azamy walked into a Commonwealth Bank branch in Melbourne in December, 2016, it was to get information about a loan for a car. 

Shahir, who had just turned 18, lived with his three siblings and their father and mother, whose disability support pension and carer's payments covered the bulk of the family's living expenses. 

Shahir worked two jobs at the time, one at a clothing store and the other at Woolworths, and his combined pay barely covered the rest. 

A Commonwealth Bank salesperson ushered Shahir into their office, bought him a coffee, and told him that getting a loan was a great idea, and that it would show up as good credit when he wanted to get a home loan later in life. 

A personal loan, they said, would give Shahir greater access to other forms of credit than a car loan would. "They made it sound like it was going to be so easy to pay back," Shahir recalls. He signed up for a $15,000 personal loan on the spot. 

They made it sound like it was going to be so easy to pay back

Shahir Azamy, about signing up for a $15,000 loan with CBA

But as he left the bank, Shahir felt unsettled and confused. He realised that he didn't know when he would be getting the funds, so he walked back inside to ask. The salesperson said it would take two to three days, and Shahir left to catch a bus home. 

It was on the bus that he looked through the loan contract for the first time. He didn't understand what any of it meant and felt sick in his stomach. He thought: 'What the hell did I do?' 

The following month, Shahir went back to the bank. He needed to pay a few bills, and the bank gave him a credit card. "They said I was eligible for $10,000, but I said I want the minimum, which was $3000," Shahir says. 

He made repayments on both his loan and credit card for about seven months. Then he started to fall behind. "Once you miss one payment, you spend two weeks trying to catch up to that payment – and then you only have two weeks to pay the next one off," Shahir says. 

He tried using his credit card to pay off his loan – the late fees were much higher for the personal loan than the card – thinking he would pay off the credit card later. But he couldn't sustain it. 

The bank paused his repayments for several months, but Shahir couldn’t catch up. When he got default notices demanding that he pay, he became anxious.

Since the 2000s, mounting evidence of predatory lending has prompted governments to strengthen consumer credit laws.

In July, 2017, he went to a car dealer to see if he could get a better repayment plan by trading in his car. A group of salesmen at the dealership offered Shahir a car for $15,000, which was what his current car had cost.

They told Shahir that a loan with PowerTorque Finance – a division of Toyota Finance Australia – would be easier to repay than his current loan. They said PowerTorque would be more lenient and the late fees were so low Shahir wouldn't even notice them, if it came to that.

The finance officer asked Shahir if he had any expenses, such as a gym membership. Shahir said yes, he had a gym membership. "And they're like, 'We'll just put down that you don't have a gym membership'," Shahir recalls. 

"I started smiling because I thought he was helping me, but he was just trying to help himself."

Shahir tried to ask questions about the new loan, but the finance officer nudged them off. It was late in the afternoon, and he was rushing Shahir to finish the deal. Shahir signed the signature page, and was handed the rest of the contract afterwards. That's when he saw that he was getting $7000 in return for his car. 

Shahir was stunned. He had thought that trading in his car would get him $15,000 back – money he could use to pay off his personal loan. Instead, he now had a loan with Toyota Finance worth $18,000 – for the car and add-on insurance and fees – as well as a combined debt of $17,000 with the bank. 

'Long overdue' lending laws

Since the 2000s, mounting evidence of reckless and predatory lending has prompted governments to strengthen protections for people seeking credit. 

In 2008, as the effects of such lending practices revealed themselves in the Global Financial Crisis, the Council of Australian Governments proposed broad reforms for the lending sector.

More than a year later, after extensive consultation, negotiation and scrutiny, the Rudd government introduced into Parliament a raft of measures termed the 'Consumer Credit Protection Reform Package', which included a national licensing scheme and responsible lending obligations. 

Credit providers were expected to meet their responsible lending obligations in two key ways – the first was to make reasonable inquiries to assess whether a credit contract would meet the borrower's needs and aims. The second was to take reasonable steps to verify that the person would be able to comply with the contract without substantial hardship. 

Responsible lending laws are incredibly important to getting at least some remedies for people who have been given unaffordable loans

Barbora Jezek, Consumer Action Law Centre solicitor

By law, lenders now had to bear some responsibility for making sure that a person would be able to repay a loan before giving it to them. 

Raj Venga, who was then the ombudsman at the Credit Ombudsman Service (since replaced by the Australian Financial Complaints Authority), said the legislation was "frankly, long overdue". 

Nevertheless, the number of households in Australia with debt three or more times their income has been rising: up from 23% of households with debt in 2006 to 28% in 2018. That year, the financial services royal commission showed that exploitative practices still abound in the industry, as witness after witness detailed how their lives had been marred by debt. 

In his final report, royal commissioner Kenneth Hayne advised that responsible lending laws should either stay the same or, if found to be deficient, be tightened.

Desperate for a solution

Shahir struggled to make his repayments. The ones he missed – along with the fees and interest – were stacking up. He lost his appetite due to the stress, and started losing his hair.

As Christmas neared, the clothing store got busier and increased Shahir's hours. They kept overlapping with his shifts at Woolworths, so he left the supermarket job. But when the holiday season ended, the clothing store cut his shifts down to five hours a week. This wasn't enough to help cover his family's expenses, so he left and signed up for Centrelink, which paid more. 

The ATO ordered Shahir to pay thousands of dollars as part of the government's robodebt scheme, and he used his credit card to do so

For Shahir, the months that followed are a blur of threatening letters, emails, phone calls and texts from creditors, of applying for jobs online and driving around, handing out his resume to any workplace that had labouring jobs. "I took it to retail shops a little bit as well because that was my background, but I thought that factories would hire you the quickest," he says. 

At one point, the Australian Tax Office ordered Shahir to pay thousands of dollars as part of the government's robodebt scheme, and he used his credit card to do so. 

At another point, desperate for help, he responded to an online ad for debt consolidation. The firm behind the ad told Shahir to declare bankruptcy. "I didn't want to do that," he says. "I'm just like, I'll deal with it myself. I'll try and get through this."

But by mid-2019, Shahir had come to feel like there was no way out. He couldn't see how he would ever repay his debts, which had grown to about $36,500, and the default notices and legal threats kept streaming in. 

At times, Shahir thought about taking his own life. "My weeks were exactly the same," he says. "Monday was no different to the next Monday, I'll do the exact same thing: get the exact same letters, have the exact same thoughts." 

In July, Toyota Finance told Shahir they were coming to take his car. To stop this from happening, he drove his car to a car park at nine o'clock every morning, and sat there until 5pm. He didn't want to tell his parents what was going on. "That would literally kill my father because, honestly, it was a really, really bad situation," he says. 

After weeks of this, as he sat in his car one day, Shahir searched online for help with his debts. "I was desperate, I would look at anything," he says. "I would call up anyone to see if I can get help." 

Consumer Affairs Victoria came up as one of the search results, and he called them. The regulator referred his case to the Consumer Action Law Centre. Within days, he got a message from Barbora Jezek, a solicitor there.

How the current laws work

Barbora has spent the last three years representing people with issues that are covered by consumer and credit laws. For many of her credit law clients, debt has plagued them for much of their adult lives. 

What Barbora stresses is that, generally, people aren't as good at assessing their income and expenses as lenders are. But lenders have an incentive to sell loans whenever they can. "So we often have people who should never have been given that loan – because it's not affordable – and they try and they try, but eventually they can't keep up," she says. 

New reforms proposed by the Australian government, which will wind back responsible lending obligations, would exacerbate the situation. Removing the requirement of lenders to verify people's finances would make getting credit easier, but no less harrowing for those who find themselves with spiralling debts. 

Barbora says it's already difficult to get remedies under the current laws. The standard remedy for breaching responsible lending obligations, she says, is that the fees and interest will be waived, but you have to pay the principal of the loan back. "Ultimately, it just means that the lender doesn't profit, but they don't have a penalty either."

In Shahir's case, Barbora thinks his lenders took advantage of him, knowing he was young and inexperienced. In November, 2019, she wrote to Toyota Finance claiming the company had breached responsible lending laws. 

[We are] replacing the current practice of 'lender beware' with a 'borrower responsibility' principle

Australian Government factsheet on consumer credit reforms

Toyota Finance, she said, had failed to verify Shahir's financial situation and had engaged in an unjust transaction. Shahir was in a considerably weaker bargaining position given his age and experience, and the fact that he hadn't received legal or financial advice, she wrote. High-pressure sales tactics were used to get him to enter into a loan unsuitable for his requirements and financial circumstances.

Barbora also noted that Toyota Finance had continued to demand payments from Shahir even after she told them the Consumer Action Law Centre was acting on his behalf and to stop contacting him. This was a breach of debt collection laws, she wrote.

Based on these breaches, and the $5000 Shahir had already repaid, Barbora asked Toyota Finance to accept a request for Shahir to return the car, and to waive his remaining debt. She also asked the company to pay Shahir compensation for the distress caused by their unlawful debt collection activities. 

Toyota Finance denied any wrongdoing and refused the request. In January this year, Barbora lodged a complaint against them to the Australian Financial Complaints Authority (AFCA).

In September, she wrote to the Commonwealth Bank with a similar request. At some point, the bank had sold Shahir's loan debt to Pioneer Credit, a debt collector. Barbora asked the bank to buy back and waive this debt, as well as waive Shahir's credit card debt.

Promoted by both government and industry as removing barriers to credit, new reforms will also remove protections from bad credit.

She based the request on concerns the bank had breached responsible lending laws, the fact that Shahir had already repaid $7300, and on compassionate grounds, given Shahir's limited income and the depression and anxiety he had been suffering.

By late October, Barbora hadn't yet heard back from AFCA or the Commonwealth Bank. For Shahir, the wait has been difficult, but nowhere near as difficult as the years before he received the help of the Consumer Action Law Centre. "It was dark for me and there were some thoughts," he says. "Barbora saved me."

We asked Toyota Finance on what basis they had rejected Shahir's request, and we asked AFCA for an update on the complaint. Both AFCA and Toyota Finance said they couldn't comment due to privacy reasons. 

Financial counsellors and consumer advocates, including CHOICE, fear a wave of debt among people who have lost income as a result of the pandemic

We also asked the Commonwealth Bank if they intended to waive Shahir's debts. In a written statement, the bank told us Shahir's credit applications were "assessed correctly for serviceability in an ethical manner and met the bank's responsible lending guidelines at the time of application". 

But over the following days, the bank told Barbora they wished to settle both of Shahir's debts. First, they waived his credit card debt. Then they recalled his loan debt from Pioneer Credit and waived that, too.

When Barbora told Shahir the news, he couldn't believe it. "I still can't process it because this is debt I've had for almost four years," he says. For a moment, he is lost for words. Then he continues: "Before, every night, the last thought I had before my head hit the pillow was, 'You are in massive debt for a 21-year-old'." Knowing more than half of that debt is gone, he says, is "such a weight off my shoulders".

Winding back protections

Barbara says responsible lending laws are "incredibly important to getting at least some remedies for people who have been given unaffordable loans". If the laws are removed, "it would be a lot harder to get fair outcomes for people who've been caught up in predatory lending".

Banking associations have welcomed the government's planned reforms, which – in line with government messaging – they say simplify lending laws. But they have steered clear of repeating the government's other catchlines declaring that "borrowers will be made more accountable" or replacing the "lender beware" principle with "borrower responsibility". 

Promoted by both government and industry as removing barriers to credit, the reforms will also remove protections from bad credit. ASIC and individuals will no longer be able to take banks to court for harm caused by irresponsible lending.

We asked Treasurer Josh Frydenberg's office why the government is ignoring findings from the financial services royal commission in its rush to dismantle regulations that were introduced, after much deliberation, to address proven problems with lending practices. 

It will not be uncommon for financial counsellors to have clients who have been thinking that suicide is the way out

Fiona Guthrie, CEO of Financial Counselling Australia

We also asked what consultation and negotiations the government has engaged in before coming up with their planned reforms, what scrutiny has been applied to them, and whether the government has considered that these changes could cause serious harm to Australians by weakening their protections. 

The Treasurer's office didn't answer these specific questions. Instead, they emailed us a statement, attributed to Frydenberg, that was sent to the media when the Treasurer first announced the proposed reforms, which he says are designed to "increase the flow of credit to households and businesses, reduce red tape and strengthen protections for vulnerable consumers".

The statement says it is "more important than ever" to implement these reforms in the time of the COVID-19 pandemic, and that the changes will "reduce barriers to switching between credit providers, encouraging consumers to seek out a better deal". It continues: "Maintaining the free flow of credit through the economy is critical to Australia's economic recovery plan."

Financial counsellors and consumer advocates, including CHOICE, fear a wave of debt among people who have lost income as a result of the pandemic.

"We're still seeing examples of irresponsible lending, people being given credit which is unaffordable, because lenders are not properly verifying income, they're not verifying expenditure," Fiona Guthrie, CEO of Financial Counselling Australia, told viewers at a CHOICE-run briefing about the government's proposed reforms. 

Some people come to financial counsellors and legal centres on the brink of homelessness because of their debts. Others have been considering bankruptcy. Some, like Shahir, have suicidal thoughts. "It will not be uncommon for financial counsellors to have clients who have been thinking that suicide is the way out for them," Guthrie says. "Every financial counsellor is trained so that they know how to respond to that."

Guthrie, who is on the CHOICE board, believes financial counsellors will be overwhelmed if the changes go ahead. "We're in the worst recession for 100 years, we are gearing up for a really tough time," she said. "If we have this on top of it, I don't know how we're going to cope." 

Stock images: Getty, unless otherwise stated.

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