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A marginal lending decision

Sia’s representative complained that Sia’s car loan was not affordable from the beginning. Sia applied for the loan in March 2021. The representative said that, although Sia had a job at the time, the lender failed to make sufficient allowance for her expenses given that she was supporting herself and her two children. Sia had difficulties in making her payments over several years and stopped making payments altogether in June 2023.

The lender believed that Sia’s difficulties in making loan payments occurred because of later events affecting her income.

The representative asked FSCL to investigate the complaint in August 2023. 


The representative said the lender’s calculation of Sia’s grocery expenses was significantly lower than the amount showing on her bank statements for the previous three months. The lender also failed to take into account three loans that Sia had not been paying, the costs of running a vehicle, and her cash withdrawals.

The lender said they were satisfied that, at the time of the loan application, the information they had about Sia’s income and expenses showed she could afford the loan. They believed that it was later events including a reduction in her hours of work, a three month standdown from her job, and then the loss of her job that meant she was no longer able to make payments. While the lender provided some hardship assistance to Sia over the years, after the loss of her employment it become clear she could not afford the loan. The lender suggested the best option was for Sia to surrender the car and discuss a repayment arrangement with them. 


As part of our process, we asked the lender for the information on which they based their lending decision. The lender provided Sia’s payslip for March 2021, Sia’s bank statements for the three months prior to the application, and their affordability assessment.

On the face of it, this information indicated that Sia could afford the weekly loan payments for the car. We noted the three loans that Sia had not been paying were not included on the information the lender had, and there was no evidence to show that Sia had disclosed the loans to the lender. 

In terms of the grocery spend, the lender did not provide a specific response to the representative’s view. We therefore considered benchmarks for these expenses, and concluded the lender’s allowance for groceries was low. Given this, we accepted the representative’s calculation for groceries. 

After reviewing all the other expenses, we formed the view that the lender’s decision to approve the loan was marginal, in terms of loan affordability. After meeting her expenses and the loan payments, Sia was left with $60 per week for other expenditure. This was a very slender buffer to cover unexpected costs, and this was demonstrated when Sia very quickly fell into arrears when unforeseen events later occurred. However, we thought Sia had contributed to the situation by failing to disclose the other debts she was not paying.

This was a difficult case to assess. The lending decision was marginal due to the slender buffer for expenses. However, we also noted that Sia’s later loss of employment meant that the loan became unaffordable. 

Weighing all the factors, we felt that a fair outcome would be for Sia to surrender the car to the lender to sell because she could not afford the loan, and the sale proceeds would reduce the debt. The lender was then to refund half the interest, credit fees and default fees that had been paid to the loan account. The lender would not be able to charge any interest or fees on the remaining debt once the car had been surrendered and sold.

Following the sale, we said Sia and the lender should discuss a repayment arrangement for the remaining debt. We also urged the lender to consider whether there was any hardship relief they could provide to Sia given her current hardship situation. 


The lender accepted our preliminary decision on the complaint. However, Sia didn’t. She did not provide a formal response, but we understood from her representative that she wanted to retain the car. As Sia did not respond, we had to close our file.


For participants

In assessing affordability, the lender should satisfy themselves that the borrower has a weekly surplus after considering the borrower’s regular income and expenses in case the borrower has underestimated their expenses and to allow for additional expenses may cause hardship. Lenders should consider a reasonable buffer depending on the borrower’s circumstances.

For borrowers

It is important for borrowers to disclose all their existing loans even if they are not paying them at the time. Where payment is required by the existing lenders, the borrower may not be able to afford to pay all the loans, including any new loan,  and may then have  bear the consequences of failing to fully disclose their expenses.