Insights for consumers
When accepting a personal guarantee, a lender should ensure that each guarantor’s identity and consent are verified independently. Allowing multiple guarantors to share one email address or relying solely on electronic signatures without additional checks creates a risk that someone could sign on behalf of another without their knowledge.
Best practice for lenders is to:
- obtain separate contact details for each guarantor, where possible
- confirm directly with each guarantor that they understand the guarantee, preferably by phone or an online call
- suggest each guarantor seek independent advice.
These steps help protect consumers and reduce the risk of disputes.
How one email address led to a disputed guarantee
Leila was a shareholder in a company that borrowed money under two loan agreements. Both agreements listed her as a personal guarantor. Leila said she never signed the documents and did not agree to be a guarantor. She believed her husband, a director of the company, signed the agreements using her name because the lender’s process allowed both guarantors to share one email address.
Lender leaves guarantor in limbo after complaint
Leila contacted the lender after discovering the guarantees and asked to be removed. The lender acknowledged her concerns and said they would investigate, but no further steps were taken. Leila said the situation caused significant stress and anxiety.
The lender maintained that the loan agreements and guarantee were valid and enforceable until proven otherwise and did not accept that their process was inadequate.
Unable to resolve the matter directly with the lender, Leila complained to Financial Services complaints Limited (FSCL).
FSCL finds poor guarantor verification process
We found that the lender’s process was poor. Relying on one email address for two guarantors created a risk that one person could sign on behalf of another. We considered it would have been reasonable practice for the lender to have verified Leila’s contact details and confirmed she understood the guarantees, which the lender did not do. We accepted that Leila did not know about, and had not agreed to, the guarantees.
Lender told to release guarantor and pay compensation
We decided that the lender should:
- release Leila from both guarantees
- pay her $2,000 as compensation for non-financial loss
- provide a letter confirming the release and outlining process improvements it would take to prevent similar issues.
This outcome was fair because the lender’s process did not follow best practice and had created the risk that led to the complaint, and the lender’s delay in addressing Leila’s complaint added to Leila’s stress.
Leila and the lender accepted our final decision, and we closed our file.
