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A lender miscalculates income

Prisha supplemented her superannuation by running a team harvesting kiwifruit. Prisha needed to replace the vehicle she used to transport her team to jobs. The car dealer offered to help Prisha apply for a loan to pay for the vehicle.

Prisha gave the car dealer her bank statements and a payslip from the kiwifruit orchard showing the amount of kiwifruit picked, with a total weekly income of $1,200. Prisha’s bank statements showed that the $1,200 paid into her account was withdrawn the same day in two $600 withdrawals. Prisha’s other bank statements showed a similar pattern.

The car dealer gave the lender the information gathered from Prisha and calculated her weekly income of $1,500, weekly expenses of $450, leaving a weekly surplus of $1,050. On this basis the lender agreed to finance Prisha’s car purchase of $34,000 and Prisha agreed to repay the loan at $250 a week.

About a month after drawing down the loan Prisha was diagnosed with cancer and was unable to work. Prisha contacted the lender to explain that she would not be able to afford to repay the loan because she had lost her kiwifruit picking income and was solely reliant on her superannuation of about $300 a week. The loan repayments would be completely unaffordable, and Prisha did not have any loan protection insurance.

Over the following months Prisha was in and out of hospital and authorised her daughter to speak to the lender on her behalf. From time to time the lender immobilised the car due to loan arrears meaning that Prisha found it difficult to attend hospital appointments. Prisha’s daughter contacted WINZ for help, and WINZ agreed to clear the arrears on the loan if Prisha would get help from a financial mentor.

The financial mentor was concerned that the lending was unaffordable from the beginning, but the lender did not agree, and the financial mentor complained to FSCL.

Before the financial mentor was able to get the complaint to FSCL the lender repossessed Prisha’s car.


The financial mentor said the lender had made a mistake when assessing Prisha’s income, explaining that Prisha distributed the kiwifruit picking income paid into her account to her team, and only kept about $200 for herself. On this basis, the lending would have been completely unaffordable.

The lender responded that it was unaware that Prisha distributed the kiwifruit picking income to her team. There was no indication of this on the payslip Prisha had submitted to support the application. The lender said that when the car dealer asked Prisha about the withdrawals from her bank account, she had said it was her “lifestyle preference”. On the basis of the information available when assessing the application, the lender was satisfied it had met its responsible lending obligations.

The financial mentor said that Prisha did not remember the car dealer asking about the cash withdrawals from her bank account and, if they had asked, she would have explained that she kept only $200 of the income. The financial mentor responded that English is Prisha’s second language, and she did not feel confident discussing financial affairs in English. From Prisha’s perspective she had given the lender all the information they had asked for and left it to them to calculate affordability.


It was our view that the lender should have asked more questions about the cash withdrawals from Prisha’s account. The car dealer had not kept a written record of the conversation with Prisha when she described the withdrawals as her ‘lifestyle preference’. It seemed unlikely to us that the car dealer would remember this detail of a conversation that took place about a year earlier. It also seemed to us that a cash withdrawal of $1,200 by a fairly modest income earner was a lot to spend on discretionary items and should have prompted further questions from the lender.

Balanced against this, we also considered it reasonable for Prisha to have known that the lender would be relying on the payslip when calculating loan affordability and that she should have explained that she distributed the income to her team.

However, it was our view that the lender had breached its responsible lending obligations in section 9C(3) of the Credit Contracts and Consumer Finance Act (CCCFA) by failing to ask more questions about Prisha’s pattern of withdrawing money from her bank account to satisfy themselves that she could repay the loan without suffering substantial financial hardship.

It was our preliminary view that the remedy at section 89(1)(aaa) of the CCCFA applied and it was appropriate for the lender to refund all the interest and fees charged over the life of the loan, being nearly $7,000. It was also our view that the best outcome would be for the lender to sell the repossessed car to further reduce the debt owing.


Although Prisha accepted the preliminary decision, the lender maintained their view that they could not have known that Prisha was paying the kiwifruit picking income to her team. However, it was clear that Prisha was very sick, and we asked whether the lender would consider writing off any residual debt owing, after the car was sold, on a compassionate basis. Both the lender and Prisha accepted our proposal, and the complaint was resolved.

Insights for participants

Bank statements provide very useful information about a potential borrower’s spending habits, but if a borrower is withdrawing large amounts of income in cash this should act as a ‘’red flag’’ to a lender to make further enquiries in order to assess the loan affordability. If a borrower withdraws their income in cash to pay their expenses, a lender may have to rely on information gathered directly from the borrower. It is important the lender keeps careful records of what the borrower tells them