Just as we learn that consumer sentiment is at high levels not seen since 2022 just after pandemic lockdowns, we’ve learnt that personal insolvencies have reached the highest level since Covid-19 took jobs and killed businesses. Consequently, financial regulators are gunning for those suppliers of credit who are responsible for irresponsible lending!

For the financial year, the Australian Financial Security Authority (AFSA) reports that 12,257 people went bust in the 2025 financial year, which was up 5.3% on 2024 levels. And bankruptcy levels are now up almost 25% from their lows in 2021.

Of course, one of the prime differences between 2021 and 2025 is that there have been 13 interest rate rises. While there have been three cuts from the RBA, the cost of money is now much higher.

Interestingly, the regulators aren’t blaming the banks because those most in debt and insolvency trouble are those who wouldn’t get a tick from the banks and have borrowed for cars and personal loans.

So, who are regulators blaming for this insolvency problem that’s likely to get worse.

Let’s examine the usual suspects below:

1. The RBA’s rate rises. Given the overall state of the economy and consumer sentiment, as well as business confidence, which is on the improve, these guys aren’t in the frame for these insolvencies.

2. The Albanese Government could be accused of not helping rate cuts by being very pro-environment, which has kept power bills rising. While their tax cuts have kept inflation higher, these lower taxes should have helped those with debt problems.

3. The banks aren’t in the frame for these insolvencies because as The Australian’s David Ross reports: “Westpac, Macquarie and ANZ reported loan losses tracking around 0.04%, seven times smaller than levels the banking sector faced in the 1992 recession.”

4. Buy now, pay later operators have been big players here with Ross finding “almost half of bankrupts had buy now, pay later (BNPL) loans.

5. Other non-bank and private credit lenders are also seen as problem players.

6. ASIC? While the regulator is promising to punish irresponsible lenders, the question has to be asked: have they been monitored closely enough?

The area of car lending underlines what’s at the core of the insolvency issue. “Last week, the regulator warned the motor vehicle finance sector was under serious scrutiny, warning lenders were engaging in high-pressure sales tactics with high fees and opaque terms,” Ross reports. ASIC Commissioner Alan Kirkland said the regulator was concerned companies were exploiting vulnerable borrowers. “Almost half of all consumers who defaulted on their car loans did so within six months, raising serious questions for ASIC as to the suitability of these loans,” he said.

These non-bank lenders, including BNPL businesses, need to be regulated more closely. Big fines and bans should be a part of ASIC’s armour to get rid of the really bad lenders.

AFSA chief Tim Beresford, who I taught many years ago, commented that the rise in bad loans was concerning, saying the rising figures were the first signs of “weakening financial resilience”.

“One in five debtors had an asset-to-liability ratio below 10 per cent, meaning they had very limited capacity to absorb financial shocks,” he told The Australian.

He pointed out that many bankruptcies were triggered by borrowers with less than $50,000 in debts, with much of it from personal loans or car financing.

Clearly, this is where ASIC has to take a really big stick. Isn’t it time ASIC cleaned up this pathetic part of the lending industry?

I’m not saying all this industry are irresponsible. While people on low incomes often need cars to access work, if they don’t have a job, they shouldn’t have access to expensive loans from non-bank lenders.