But I’m not the borrower!

In January 2017 Mark signed some documents, witnessed by a police officer, because his daughter Juni said that she needed him to confirm her identity for a loan she had applied for. The loan fell quickly into default and two months later the finance company called Mark about the arrears.

Mark told the finance company that the loan was Juni’s, but when the finance company said that the defaults would affect his credit rating, Mark paid the arrears.

Juni made a couple of loan payments before moving to Australia, when the payments stopped. The finance company contacted Mark again. Mark said that he had not signed a loan agreement and that the loan belonged to Juni. The finance company sent Mark the loan agreement and Mark agreed that his signature was on the agreement. Mark explained that when he signed the documents, he believed he was just confirming Juni’s identity. The finance company said that as Mark had signed the agreement, they were entitled to ask him to pay the loan. Mark felt he had no option but to start making the payments.

Over the years, Mark continued to dispute the debt and tried to get Juni to take responsibility. By August 2020, Mark was experiencing financial hardship and contacted the finance company. Mark reiterated that the loan was not his, that he had only ever intended to confirm Juni’s identity, and felt he had paid the finance company enough money.

The finance company said that Mark was a co-borrower and was liable for the full amount of the debt. Mark did not accept the finance company’s response and complained to FSCL.

 

Dispute

Mark said that when he signed the documents at the police station, he had no idea that he was signing a loan agreement as a co-borrower. Mark knew Juni was unreliable and would never have as agreed to be a co-borrower. Mark said he had not filled in a loan application, provided any supporting information, spoken to anyone about the application, or received any information about the loan. Mark had paid more than the $5,000 Juni had borrowed and wanted the finance company to remove his name from the loan agreement.

Because the application came through a finance broker, the finance company went back to the broker for comment. The finance company was satisfied the broker had followed the correct loan application process and considered Mark was liable for the full amount owing.

 

Review

We could not see any reason for why Mark signed the loan agreement. The loan provided Mark with little to no benefit and exposed him to a lot of risk. The purpose of the lending was ‘surgery’ but there was no evidence of Juni needing surgery. The $5,000 was paid directly to Juni. Mark’s case also raised elder abuse concerns for us.

We spoke to the finance broker who arranged the loan. The broker recalled the transaction and said that initially the application came from Juni alone. As Juni could not afford the loan, the broker asked whether there was anyone who could join her as a co-borrower. The loan application then came through with copies of Mark’s bank statements, a utilities bill, and driver’s licence. By including Mark’s partner’s income as well, the broker was satisfied the lending was affordable.

When asked about communication with Mark, the broker said that because she did not have his email address, she would have called Mark and explained that if Juni did not make the loan payments, he would have to. Unfortunately, the broker had not kept a record of this call, and Mark strongly denied the conversation ever took place.

When balancing the evidence, we accepted Mark’s recollection. The broker would have processed many applications during the intervening three years, while this was a unique transaction for Mark. We also relied on the finance company’s diary notes, made only months after the loan agreement was signed, recording Mark’s consistent understanding that he was only confirming Juni’s identity.

It was our view that the finance company had not satisfied their responsible lending obligations to make sure that Mark was making an informed decision. Although the finance company said the application was supported by Mark’s personal information, so he must have known he was applying for a loan, Mark explained that Juni would have had access to his bank statements, a utilities bill, and his driver’s licence when she was visiting his home.

It seemed that Mark and his partner’s income had been used to support an otherwise unaffordable loan, and that the loan default was inevitable from the outset. Although Mark did not fall within the Responsible Lending Code’s fairly narrow definition of a vulnerable borrower, we considered his situation suggested some vulnerability with the potential for elder abuse.

However, Mark had signed the loan documents as a borrower and had not read the loan documents before signing, so we considered he had some liability for the debt.

 

Resolution

The original loan was for $5,000 and Mark had paid about $7,000. We suggested the lender accept $5,000 in full payment of the loan and refund additional $2,000 to Mark. This approach is consistent with the remedy available for irresponsible lending under the Credit Contracts and Consumer Finance Act 2003.

Both Mark and the lender accepted our proposed resolution, and the complaint was resolved on that basis.

 

Insights for participants

Responsible lending obligations are designed to protect both the borrower and the lender from entering unaffordable and inappropriate loans. If the finance broker had taken into consideration the responsible lending obligations in the Credit Contracts and Consumer Finance Act 2003 when assessing the loan application, it is unlikely the loan would ever have been approved.