9 February 2000
The Australian Bankers' Association - the banks' peak lobby group - has embarked on the first review of its code of conduct for six years in a bid to reduce "sexually transmitted" debt.
The threat to the financial security of family partners arising from joint loans, guarantees and jointly held credit cards is a significant one. At a recent seminar on relationship debt problems it became clear that co-borrowers and guarantors - be they women who sign mortgage and guarantee documents for loans taken out by partners, or other relatives - often find themselves being pursued by the lender when the borrower fails to repay his or her loan.
These partners are often under the impression that their exposure is limited by time or by amount; they believe that they are guaranteeing say, $50,000, for three months, only to find down the track that they have put all their assets on the line, including their homes, when the borrower cannot repay the debt.
As more and more partners - mostly women - are asked to act as co-signatories or guarantors, it is vital that they know what they're letting themselves in for.
Women often feel intimidated when seeking advice from banks, financial advisers and accountants and, as a result, fail to investigate the issue sufficiently.
Family borrowing relationships are dominated by personal obligations, emotions and power. Too many people allow emotions to cloud what is essentially a business relationship.
The NSW State Government, the Banking Ombudsman and the Australian Bankers' Association are collecting submissions in order to develop uniform guidelines for the fair separation of joint finances when a relationship breaks down.
There are no statistics on how many joint borrowers there are, how many guarantees are signed or how many are called in by lenders, but guarantors are frequently tapped on the shoulder with a demand to pay up.
While guarantors and joint borrowers are expected to obtain independent legal advice in relation to any loan documents signed, the risk of signing a loan document or guarantee that can lead to homelessness or massive indebtedness, is often not explained.
Women, in particular, don't understand that when they sign a mortgage or a guarantee they could lose their home or be indebted for large amounts of money for many years. And when the Family Court divides assets and liabilities and women receive indemnities from their former partners, the former partner may run up more joint debt on redraw loan facilities. The indemnities are often worthless and legally unenforceable if the borrower continues to run up debt after the divorce.
Women are also often caught by clauses in "all monies" mortgages when they think they are guaranteeing a small amount for a fixed period, only to find that their liability is unlimited and continues for a long period, often beyond separation or divorce.
They need to recognise that if they are asked to sign a guarantee that the lender is not convinced that the primary borrower has the capacity to repay the loan.
The Office of Women, the ABA and the Ombudsman are working on guidelines for a sharper separation of the obligations associated with joint accounts, joint loans and jointly held credit cards at the point of separation and ensure that the liability does not continue to mount for the exiting partner post separation.
Phone and Internet loan applications offer additional risks because they reduce the face to face contact between joint borrower, guarantor and lender and reduce the opportunities for full explanation of the risks.
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