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Tighter lending methods needed in Australia

In Australia, lending practices are too weak, says one of Australia's largest financial institutions, as reported by The Australian today.

The problem amounts to too much household debt because lenders, who traditionally have been lax in who they lend to, do not need to act in the customer's best interests. The Australian reported this as the formidable opinion of AXA Australia Pacific chief executive Andy Penn.

Unlike other financial services, lenders do not have to abide by analyzing the customer's true abilities to invest. When comparing such purchases to those of financial investments, no recommendation can be given to the customer until the customer's financial circumstances have been evaluated.

According to Mr Penn, as reported in The Australian, "We have a very effective compulsory superannuation system in Australia, but that's not going to work if people's liabilities are increasing at the same pace or more quickly than they are saving through super." Furthermore, he says, "Often, people will judge how much they can afford to borrow by how much the person in front of them is willing to lend, and we've seen the consequences of that n the US."

This news comes in loud and clear as recent reports of the over valuing of properties are at an all time high here. In addition, banks have lost billions of dollars due to the housing fall in the US. Tighter lending practices may help to reign in some of the costs and legalities associated with these credit problems.

Additionally, these comments made by Mr Penn were released just after the Reserve Bank of Australia issued a statement that household debt had climbed to some 159 per cent of disposable income through September of 2007. That number, according to the Reserve Bank, is the highest in the last ten years.

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