The story
William is 21, employed, earning $42,000 a year. William did not have quite enough money to cover his expenses so applied to a payday lender, Phone for Cash, for a $100 loan to be repaid the following week. William completed an application, provided proof of income and the loan was advanced. William repaid the loan on time, without incident. A couple of weeks later William was again short of money. He called Phone for Cash and asked for a $200 loan to be repaid the following week. Again William repaid the loan on time. A few weeks later William borrowed $400. This time William could not repay the loan and defaulted. William asked his father for help and fortunately William’s father was able to repay the debt.
A few months later, in August, William applied to Phone for Cash for a loan of $800. William knew he would need to pay Phone for Cash $1,264 within 45 days. William did not repay the loan and Phone for Cash began its debt recovery process, sending text messages and trying to contact William by telephone. In October Phone for Cash demanded immediate payment of $1,372. By November the debt had increased to $1,586 when Phone for Cash again tried to contact William. In January Phone for Cash made its third demand for $1,766, advising the debt would be referred to a collection agency. William did not respond until February when he asked his father for help.
Phone for Cash asked William to see a budget adviser. The budget adviser said William could afford to pay $75 a week. Phone for Cash said this was not enough, and wanted William to pay $600 a week. William phoned FSCL in March, by now his debt was $2,070.
Dispute
William agreed he owed Phone for Cash $2,070 but said it was impossible for him to pay $600 a week. William said he thought Phone for Cash should not have loaned him $800 after he had defaulted on the previous loan. William asked for our help to negotiate with Phone for Cash.
FSCL’s review
We asked Phone for Cash whether it would accept anything less than $600 a week, explaining this was an unrealistic sum. Phone for Cash said it had tried working with William. William had ignored the demands for payment. Phone for Cash was not prepared to accept $75 a week from William, it was barely enough to keep pace with the interest, and Phone for Cash was concerned William would again default. Phone for Cash explained the administrative time in following up defaulting debtors is uneconomic and it had made the commercial decision to refer the debt for collection.
We explained to William that under our terms of reference we cannot interfere with commercial decisions in relation to debt and security. We could not see that Phone for Cash had done anything wrong. Phone for Cash had followed a reasonable application process, William had a relatively good history of repaying debt and had not contacted Phone for Cash early when he knew he could not repay the loan.
We asked William whether he could approach his father again for help. Even if he was not able to raise the full amount needed to repay the debt we said we would help him to negotiate with Phone for Cash if he could improve the repayment offer.
Outcome
William contacted us about a week later to say he had been able to repay the Phone for Cash debt in full. We discontinued our investigation.
