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FNS40120 Certificate IV Credit Management Case Study

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Added on: 2022-11-10 04:40:34
Order Code: 475385.2
Question Task Id: 0

Read the following case study then answer the questions that follow.


Jason and Libby Martin have been married for three years. They have no dependants.

They rent their current home and want to buy an apartment in one of the outer suburbs.

Jason is a self-employed builder. The business structure is a partnership with Libby, who helps with bookkeeping and invoicing. Jason has established contacts with a number of building companies, which provide him with much of his work. He also advertises locally and fills any extra time with small jobs.He has been self-employed for eight years.

Libby works for a large catering firm.

The purchase price of the apartment they want to buy is $580,000.

They have saved $150,000 and will receive a gift of $100,000 from Libby’s parents to assist with the property purchase.

Additional purchase and borrowing costs are estimated to be $35,000.


The apartment is vacant at the moment. It has a large double garage which Jason can use to store building supplies. Jason has checked with the owners’ corporation and they will allow him to use it for this purpose.

The selling agent is Vandyke and Hudson, 19 Valley Way, My Town. They hold the keys to the property. They also hold a deposit of $54,000 from Jason and Libby.

The vendors are Peter and Denise Jago.

Following is an extract from Jason and Libby’s loan application.

Loan application form

Loan purpose

Purchase home (owner occupied)

Amount and type of loan sought

$400,000 — Standard variable rate

Address of property

14 Doody Street

My Town 1309

Client details


Applicant 1:

Jason Martin

Date of birth: 21/8/80

Applicant 2:

Libby Martin

Date of birth: 15/12/82


1/45 Nelson Street

Uptown 1999

Years there: 3

Status: Renting

Previous address

23/11 Railway Avenue

Downtown 1000

Years there: 3

Contact details

Home phone: 03 9999 9000

Business phone: 0705 3452

Fax: 03 9999 9001

Mobile: 0705 345 206

Number of dependants


Employment details

Applicant 1

Self-employed — Builder

Years in self-employment: 8

Applicant 2

Catering assistant

Splendid Foods Pty Ltd

27 Diana Street

Cranbrook 1000

Phone: 03 9929 9999

Years with employer: 3



Variable, but has averaged about $80,000 p.a. over the last four years (before tax and after payment of business expenses)


$45,000 p.a. (excluding overtime and before tax)

Credit history


Personal loan to purchase a new van for work — since repaid

Personal credit card with Big Bank with a limit of $2,000. Current balance: $300

Business credit card with Big Bank with a limit of $5,000. Current balance: $2,500


Personal loan to purchase a car — since repaid

Personal credit card with West Bank with a limit of $3,000. Current balance: $1,000

Store card with West’s department store. Current balance: Nil

Note: All credit cards are repaid in full when due

Task 2.1      Verifying information 

Question 1 

Do these applicants have to verify their identities on their first visit? If so, explain why this is necessary and how they can do so. (40 words)

Question 2 

Explain how you would verify the following information supplied by the applicants: address, employment and income, dates of birth, and credit history. (80 words)

Question 3 

How would you verify the equity they intend to contribute to the purchase? What should you check for regarding the applicants’ contribution? (50 words)

Question 4 

What other information might you need and how would you verify it if necessary? (50 words)

Question 5 

What is the name of the legislation you must abide by when keeping customers’ information safe
and secure?


Question 6

When dealing with a client it is important to comply with relevant legislative requirements, industry regulations and codes of practice relating to security in credit applications. Refer to the organisational policy and procedures document available in the Toolbox. How would you ensure that you keep your clients’ information safe and secure? (40 words)

Task 2.2      Assessing against the five Cs of lending

Further information

Cost of property


Purchasing and lending costs


Applicants’ total contribution


Loan sought


Jason and Libby are seeking a loan term of 30 years.

The monthly repayments on this loan will be $1,908.00.

Apart from the rent they currently pay of $450.00 per week, (which will cease once they move into their own home), and costs associated with maintaining the new home, the applicants have no ongoing financial commitments.

Note: For the purposes of this assignment, ignore the possibility that the applicants might benefit from any government subsidies or allowances due to it being their first home purchase.

Question 1


Given the information presented in the case study and dependent on verification of information, what comments would you make about the ‘character’ of the applicants, Jason and Libby? 

What is your conclusion about the applicants’ character? (100 words)

Question 2


Using the income percentage method, calculate the applicants’ capacity to repay the loan.What will their commitment level be if the loan is approved? Applying generally accepted limits, is this level acceptable?

Alternatively, use your organisation’s loan serviceability model to calculate the applicants’ capacity to service the proposed loan. Does the proposal meet your organisation’s serviceability policy? (50 words)

Question 3


Assuming the valuation placed on the property is $580,000, calculate the loan to value ratio (LVR).

What comments would you make about the applicants’ proposed equity in the purchase in relation to general lending requirements? (40 words)

Question 4


(a)      With reference to the policy and procedure outlined in the Toolbox, how should this loan be secured?

(b)      Is the security sufficient from the lender’s point of view? Why/why not?

(c)       What important step should be taken to ensure you are relying on an accurate value of
the security?

           (50 words)

Question 5


Using the information presented so far, identify any conditions that might impact this loan application. (50 words)

Question 6 

Loan recommendation

(a)       Using the information presented so far, identify and compare two (2) loan products that would meet the borrower’s requirements. List three (3) features for each loan product and outline any associated fees and charges.

(b)      Identify and outline two (2) similarities and two (2) differences between the two products.

  Use the tables provided for your answers. (50 words)

Question 7 

Assessing and managing risk


er to your topic notes to answer the following questions about evaluating the loan application.

(a)      Explain the traditional approach to loan evaluation.

(b)      What are some of the systems or technical assessment techniques used by lending organisations?

(c)       In order to assess a loan application, it is essential to complete the necessary data entry and recording systems to capture and analyse credit information. Complete the loan fact finding information sheet based

on the case study for Jon Tan. The case study is located in the Toolbox.

(80 words)

Question 8

Credit policy and procedure

(a)      Describe three (3) key features of policy and procedure for credit assessment.

(b)      How is compliance with policy and procedure audited? Outline one method that can be used to audit compliance with policy and procedure. 

           (100 words)

Question 9


(a)      Outline two (2) types of security that can be taken for the types of credit outlined in the table below.

(b)       Describe how taking security reduces risk for the lender and the benefits for the borrower.

(c)       Describe one (1) way a lender can audit or review risk and security to ensure that they are fully covered at all times.

(d)       Provide one (1) strategy t

hat could improve risk in relation to lending. (100 words)


uestion 10


(a)       Analyse the security property offered for the loan, (referred to the AB Bank loan fact finding fact information sheet in the Toolbox) and explain what steps you can take for a quick property appraisal and explain the process how a valuation is conducted.

(b)      What steps are required to register a security interest over the property on behalf of the lender?
(20 words)

Question 11

Sometimes customers’ relationships or circumstances change. This may mean they want to change
the ownership of a property which is held as security. What are the steps required to make the necessary amendments? (Refer to organisational policy and procedures in the Toolbox). (100 words)

Question 12

Personal Property Securities Register (PPSR) overview (40 words)

Refer to the link on the PPSR website 

(a)       Name the legislation that governs the Personal Properties Securities Register.

(b)       What type of property does the legislation cover?

(c)       What is a security interest?

Task 2.3      Negotiating conditions with the applicants

Further information

The valuer’s report has been received and it places a value of $540,000 on the property, which is the same as the purchase price.

The loan has been reviewed by your credit manager, who has added the following conditions to the loan approval. These comply with your organisation’s guidelines:

•   The term of the loan will be 20 years instead of 30. This will allow the applicants to take advantage of their current, relatively high capacity to repay, thereby allowing the loan to be paid off more quickly. This is desirable from the lender’s perspective because Jason is self-employed and his income is variable, and because a downturn in the building industry is predicted, which may affect all trades.

•   The applicants are to provide income and expenses statements for the partnership to the bank every six months, in order to monitor their income levels and ability to service the loan.

You write to Jason and Libby advising them of these conditions. Libby phones you to say they accept the requirement to provide six-monthly income and expenses statements; however, they want at least a
25-year loan term.

Question 1

What would you say to Libby to persuade her that a 20-year term is preferable? (50 words)

Task 2.4      Gaining the applicants’ acceptance of the loan offer

Question 1

Both applicants have verbally agreed to accept the additional conditions attached to the loan. What should now be done to obtain the applicants’ formal acceptance? (50 words)

Question 2

What are the key issues that you should keep in mind in relation to the letter of offer? (50 words)

Question 3

Explain how you would guide clients through the key details of the loan documentation. (50 words)

Question 4

What should you typically check once you have received their acceptance of the letter of offer? (75 words)

Task 2.5      Establishing the loan and disbursing funds

Further information

You have now received a copy of the letter of offer signed by the applicants. You have checked that all items in the letter, including signatures, are correct.

The applicants have indicated that they wish to open an account with your organisation from which monthly loan repayments will be deducted.

Settlement is set to take place in four weeks’ time.

Instructions for disbursement of funds as follows:

Cheque for $486,000 made out to Peter and Denise Jago.

The loan can now proceed to the establishment and settlement stage.

Generally, and without specific reference to the case study, what steps and checks should be taken to settle the application and debt arrangement? (150 words)

Task 2.6      Conducting a loan file audit

As part of the loan review team your job role is to review loan files to verify compliance to policy and procedures and identify potential breaches to legislation.

Refer to the ‘Example loan file audit report’ in the Toolbox.

An inexperienced loans officer completed a loan application. The applicants wanted a loan to purchase two investment properties, including stamp duty costs and other setup costs.

The loans officer used a fact find document and loan application checklist to collect client information. During this process it should be noted that the loans officer:

•   obtained two payslips with no YTD recorded, but did not cross check payslip amounts with
bank statements.

•   ticked the applicant box confirming fulltime employment knowing the borrower was only a casual employee.

•   was unable to obtain the living expenses from the applicants as they were not forthcoming so relied on the HEM for proof of living expenses.

•   wasn’t too sure what to put as the purpose of loan when completing the Preliminary Assessment ? so wrote ‘purchase property’.

•   failed to include what upfront commission and ongoing commission they will be paid when preparing the credit proposal.

•   did not pick up that the drivers licence had a different DOB to the fact find and passport.

•   was not too sure about best interests duty and offered a loan they thought best suited the client even though the applicant stated they want a loan with no account fees.

•   failed to obtain credit card statements, and loan statements for existing loans as required by the lender.

Question 1

Using the information provided above, complete the table below.

Student response to Task 2.6: Question 1


Audit procedure

Compliance level

(S ?  satisfactory)

(NS ? not satisfactory)

Potential breach identified

(a) Minor

(b) Serious

© Fraud

Audit remarks

Action required

Credit Proposal Document



Failed to include the upfront commission and onging commission

Additioanl training need.

Income Documents



No YTD recorded on the payslip, not check payslip amounts with bank statement 

Prefer to get payslips with YTD. Need to check the income amount with bank statement. Further training need to provided

Employment Status






Casual employee but tick the box of full time.

Maybe potential fraud.- open a case

Expenses Verified



No document found to prove expenses

Additioanl training need.




Failed to obtain credit card statement and loan statement

Need further training,

Identification Documents



Different DOB between fact find and passport

Need to check information carefully

Best interests duty discharged



Was not sure about interst duty and offered a loan they thought best suited the client

Need further training,

Question 2

What recommendations to management would you make based on the issues identified in the table above to improve processes and reduce risk? (100 words)

Question 3

What procedures will an organisation follow in the event that a breach has occurred? In your answer you will need to address:

•   when a breach is to be reported

•   where it is reported

•   who it is reported to.

(150 words)

To assist you with answering this question, a sample breach compliance policy can be found in the Toolbox.

Question 4

What ‘whistleblower’ protections are available to staff who report serious breaches when identified and not addressed? (50 words)


  • Uploaded By : Katthy Wills
  • Posted on : November 10th, 2022
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