Ami found a new home that she wanted to buy. However, it was taking Ami some time to sell her existing home, and Ami needed money in order to secure the purchase of the new home. Amy asked Jasmine, her grandmother, if Jasmine would be willing to mortgage her home in order to provide bridging finance for Ami, while Ami waited for her old home to sell. Jasmine agreed, as it was only intended to be a short-term loan. Jasmine set up a trust to use in facilitating the loan. Jasmine then spoke to a finance company (lender) about obtaining a loan to be secured against her property.
In the end, Ami did not need her grandmother’s assistance or the bridging finance, as her old home sold in time to settle the new purchase. When Jasmine told the lender that she no longer needed the loan, the lender said that Jasmine owed it $20,000 in fees.
Jasmine believed that she had not contractually signed up to the loan, and that the documents she had signed had only been an offer. Jasmine did not believe she should be liable for the fees. Jasmine complained to FSCL.
Dispute
Jasmine believed that the meeting she had had with the lender was an ‘application interview’ and that the loan terms would be clarified once the loan documents had been sent to her lawyer and she had received legal advice.
Jasmine said that she had been concerned about two fees listed in the document, one for $1,000 payable on acceptance of the proposal and the other for $20,000, payable if the loan wasn’t drawn down. Jasmine said that the lender told her that $1,000 would be charged if she did not go ahead with the loan, but would be waived if she did. Jasmine said that she was told that the $20,000 would be structured into the loan repayment, payable only if she drew down the loan.
Jasmine said that when her lawyer received the documents, her lawyer advised her against taking out the loan, as the lawyer believed the fees were predatory. Jasmine had already spoken to another lawyer about the loan, who had also warned against it. After the second warning, Jasmine said she contacted the lender and said she would not be going ahead with the loan.
Jasmine said she was surprised and upset to receive an invoice for $20,000 from the lender, rather than the $1,000 she was expecting.
The lender said that the fees had been clearly outlined in the loan documents that Jasmine was shown, and which she had signed. The loan proposal stated that Jasmine would be liable for all fees, even if the loan was not drawn down.
Review
We found that since Jasmine had organised the loan through a trust, the Credit Contracts and Consumer Finance Act (CCCFA) protections did not apply. FSCL could only look at whether the fees had been properly disclosed to Jasmine, or whether the fees were so unfair or unreasonable that the CCCFA provisions should not apply.
We found that the lender had disclosed the $20,000 fees and that Jasmine had had three separate opportunities to see those fees before she signed the loan proposal.
We noted that Jasmine’s initial lawyer had told her not to sign any documents until he had had an opportunity to review them. Jasmine had chosen to ignore this advice when she signed the loan proposal.
Finally, we noted that the lender had spent about 22 hours of time processing Jasmine’s loan application.
Resolution
When the complaint was initially sent to the lender to review internally, the lender offered to settle the complaint by dropping the fees from $20,000 to $12,000. Jasmine refused that offer and countered with an offer to pay $5,000. With our assistance, the parties eventually settled on $10,000.
Insights for consumers
When looking at loan applications and contracts, it is important not to sign anything, without understanding exactly what you are agreeing to. We recommend obtaining legal advice before signing a loan agreement, particularly when borrowing a large amount of money.
