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A reasonable offer to resolve an irresponsible lending complaint

In December 2021, Samantha took out a loan of $52,000. The main purpose of the loan was to purchase a new car, but it also included $6,600 for ‘’add-on’’ insurance policies including payment protection and mechanical breakdown.

Within just four months of taking out the loan, Samantha found herself struggling financially. She sought help from a financial mentor who raised a complaint with the lender. He said that if the lender had conducted a proper affordability assessment, they would have found Samantha did not have enough income to cover the loan repayments on top of her existing commitments.

The lender did not resolve the complaint through their internal complaints process, so Samantha’s financial mentor contacted FSCL.


Samantha’s complaint was about irresponsible lending. In making this complaint she was alleging the lender had breached the lender responsibility principles set out in the Credit Contracts and Consumer Finance Act 2003 (CCCFA).

The first step we took was to request information from the lender about how they had assessed the affordability of the loan. In response to our request, the lender offered to settle the complaint by:

  • refunding all interest and fees Samantha had paid
  • selling Samantha’s car, and writing off the remaining balance of the loan.

Samantha did not initially accept this offer. Her financial mentor said a fair outcome would be for all her loan payments to be refunded. He also suggested the lender should compensate Samantha for the full cost of the insurance policies she had taken out.


Our review focused on the reasonableness of the lender’s offer.

We thought the lender’s offer to refund interest and fees rather than everything Samantha had paid was fair. This was firstly because refunding interest and fees was consistent with the remedy set out in the CCCFA. Secondly, Samantha had benefitted from the loan by having the use of the car. This meant we though it was reasonable for the lender to retain the loan principal payments she had made.

We also thought the offer was fair because the lender would write off the remaining balance of the loan. All parties agreed Samantha’s car would sell for much less than the amount she still owed. This would have left a shortfall that Samantha would have been responsible for repaying. Although we had not completed a full investigation, it was likely the offer to write off the shortfall was more favourable than we would have been able to recommend if the lender had not made such an offer.

Finally, we considered Samantha’s concerns about the insurance policies. We noted the premiums for the policies had been added to her loan. This meant Samantha was yet to pay most of the cost of the policies. We explained that we could not tell the lender to compensate Samantha for costs she had not yet paid. We also noted that the lender’s offer included writing off the unpaid amount, which included most of the cost of the policies.


After further discussions with FSCL, Samantha decided to accept the lender’s offer. She received a refund of $3,800 for the interest and fees she had paid, and surrendered the car for sale.

Insights for participants

This case is an example of a lender making a fair offer to resolve a complaint rather than going through a full investigation. We encourage all participants to consider making settlement offers where they think it is right to do so.

The lender’s decision to write off the remaining balance of the loan is not something we would always expect to see, but may be the reasonable and pragmatic thing to do when there is little chance of recovering a shortfall from the borrower.