Brandon had a loan account that he could use to purchase items from a retailer. He used the account to finance the purchase of a new mobile phone and some accessories. Just over a year after he opened the account, the lender wrote to Brandon saying their interest rate would increase from 25.5% to 27.5%.
Brandon complained to the lender about their decision to increase the interest rate. He said they should not be allowed to increase it above what he had agreed to when opening the account. He also complained that the lender had not told him interest would be charged at the end of every month, or that there would be a $15 fee for late payments.
The lender said they were entitled to change the interest rate on the account, provided they gave Brandon notice. They said this was set out in the terms and conditions of the account. The lender also said the loan agreement explained how interest would be charged and disclosed the late payment fee.
Brandon did not accept the lender’s response and complained to FSCL.
Brandon said it was unfair for the lender to increase the interest rate on the account. He also said the information about how interest would be charged and the late payment fee was too small for him to read.
The lender maintained that they were allowed to increase the interest rate, and that the loan agreement set out the other information Brandon was complaining about.
We reviewed the terms and conditions for Brandon’s account. These said the lender could increase the interest rate, but that before doing so they had to give at least 14 days’ notice. The lender had given Brandon 28 days’ notice – which was more than they were required to give. This meant we could not say the lender had done anything wrong when increasing the interest rate.
In terms of when interest would be charged and the late payment fee, we found both matters were covered in the loan agreement Brandon signed. Although Brandon said the print was too small, there was no evidence he had raised this concern with the lender before signing the agreement. If he had done so, the lender should have made sure he understood the terms. But in the absence of Brandon raising the issue, his signing the agreement and initialling of every page indicated he accepted the terms.
We also noted it did not appear Brandon had been adversely affected by either of these issues. Interest was calculated based on the outstanding balance at the end of each day, so charging it at a different time in the month would not reduce the amount charged. And Brandon had made all his payments on time, so he had not been charged any late fees.
We explained to Brandon that we had not found the lender had done anything wrong. Although he was still unhappy the interest rate for his account had increased, he accepted our decision and agreed to discontinue his complaint.
Insights for consumers
No borrower wants the interest rate on their lending to increase, but it is important for consumers to understand that some types of account do have variable interest rates. Although an increase to the interest rate on these types of accounts will always be unwelcome news, this does not necessarily mean the lender has done anything wrong.
Consumers should also tell a lender if they are having trouble reading or understanding an agreement before signing it.