Australia Expands Use of AI to Tackle Predatory Lending and Protect Vulnerable Borrowers
Image Credit: Eduardo Soares | Splash
Australian regulators are expanding the use of artificial intelligence to monitor and address predatory lending, aiming to better protect vulnerable consumers amid persistent cost-of-living pressures. The Australian Securities and Investments Commission (ASIC) and several financial technology companies are deploying data analytics and AI to identify high-risk lending practices and support regulatory compliance.
AI Integration in Lending Oversight
ASIC has incorporated AI and data analysis into its supervision of credit providers, focusing on identifying patterns linked to high-cost payday loans and consumer leases that may exploit low-income borrowers. In 2024, ASIC conducted a review of small amount credit contracts, using data-driven techniques to flag providers failing to meet responsible lending obligations under the National Consumer Credit Protection Act (NCCP Act). Automated compliance platforms are being trialed within the financial sector, although most consumer-facing AI tools remain in early development.
Financial Hardship and Regulatory Action
Australia’s cost-of-living crisis continues to strain household finances. The Australian Bureau of Statistics reported approximately 122,000 people experiencing homelessness on Census night in 2021, accounting for about 0.48% of the total population—the most recent data available. The Australian Financial Complaints Authority (AFCA) received a 25% increase in financial hardship complaints between 2023 and 2024, reflecting a rise in disputes over high-cost loans and repayment difficulties.
ASIC has taken enforcement action against several lenders, including Cigno and BSF Solutions, which were found by the Federal Court to have charged over AU$70 million in fees without holding a credit license. Proceedings have also commenced against Ausfinancial Pty Ltd, trading as Swoosh Finance, for alleged breaches of responsible lending obligations.
Regulatory Developments
Regulators continue to update standards to close loopholes exploited by predatory lenders. Recent reforms include bans on certain rent-to-buy schemes within Centrepay, the government payment system. The NCCP Act mandates that lenders avoid unsuitable loans, but ASIC has noted ongoing challenges with online and short-term lenders circumventing responsible lending obligations. In 2023–2024, the ABS reported that AU$1.3 billion in small and medium loans were issued nationally.
Ongoing Challenges
While AI offers regulators enhanced capability to detect and prevent misconduct, systemic issues such as poverty and gaps in consumer protections persist. Privacy considerations are addressed by standard encryption protocols, but broader reforms are required to reduce harm from predatory lending practices.
Source: ASIC
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