In 2018 Khaled borrowed $8,000 to buy a car. Khaled struggled to make payments from the beginning, but his financial difficulties were made worse during the Covid lockdown and in April 2020 he applied to the lender for hardship relief.
The lender accepted Khaled’s hardship application and reduced his weekly repayments from $62 to $40 for six weeks. Later in 2020 the lender agreed to restructure the loan by adding the loan arrears to the balance owed and permanently reducing the weekly repayments to $42.
In September 2021 Khaled stopped repaying the loan and in October 2021 submitted a change of circumstances form to support his hardship application. The lender’s Covid relief team declined the application four days later because it did not meet their criteria. The lender was concerned Khaled was experiencing long term financial hardship and offered to transfer his hardship application through to the general hardship team.
In the months that followed Khaled continued to submit hardship applications, but it was not until March 2022 that the lender clearly explained that Khaled did not qualify for hardship relief because he could not afford to make any loan repayments.
By August 2023 Khaled had made no payments since September 2021 and the lender decided to take recovery action. Khaled complained to FSCL that he believed the lender had accepted his hardship application and could not now demand that he repay the loan.
We referred Khaled’s complaint to the lender’s internal complaints process and the lender agreed to write off the full amount owing on the loan, nearly $7,000, and removed the security interest in the vehicle. Khaled did not accept the offer and asked FSCL to investigate his complaint.
Dispute
Khaled did not accept the offer because he wanted the lender to correct his credit record to show that he was in hardship, and not that he had missed payments.
The lender said that they had not approved Khaled’s hardship application and that they were unable to change his credit record because it accurately showed that he had not made any loan repayments since September 2021.
Review
We explained that although Khaled was experiencing financial hardship, this did not mean the lender was obliged to offer hardship relief. As Khaled could not afford to make any payments it would have been irresponsible for the lender to endorse Khaled’s decision to stop repaying the loan. We were satisfied the lender’s advice to the credit reference agency, that Khaled’s payments were late, was accurate and the lender could not ask the credit reference agency to change the notation to ‘hardship’.
We reviewed the lender’s communication with Khaled and could understand his confusion. Between November 2021 and March 2022, the lender did not give Khaled a definite response to the hardship application, offering to reconsider the additional information Khaled was supplying. However, in March 2022 the lender explained that Khaled did not qualify for hardship relief and, as Khaled could not afford to repay the loan, there was nothing more they could do.
It was surprising that the lender did not take recovery action sooner. Delayed recovery action can increase costs and be stressful for the borrower.
However, we explained to Khaled that the lender’s offer to write off his residual debt of about $7,000 and release the security interest on the car was reasonable compensation for any communication confusion.
Resolution
Khaled accepted our preliminary decision and agreed to discontinue his complaint.
Insights for consumers and participants
Under the Credit Contracts and Consumer Finance Act 2003 lenders are obliged to consider hardship applications from borrowers whose financial circumstances have unexpectedly changed. This was certainly true for Khaled, as a result of Covid he had lost his job and had to move house. However, if it is not possible to restructure a loan, as the lender originally did, it would be irresponsible to allow a borrower to stop their payments indefinitely.
