In May 2015, Lyndsay applied online for a credit card with his lender. The lender approved the application and gave Lyndsay a $49,700 credit limit with an interest rate at 2.99% for six months. Lyndsay had a high annual income in excess of $200,000.
In mid-2015, Lyndsay went travelling with his family and charged approximately $12,000 to his credit card. Lyndsay’s first payment of $51 to the card company was due on 16 July 2015. Lyndsay missed that payment but paid $500 on 20 July 2015. On 18 July 2015, the lender sent Lyndsay a letter saying his account was overdue and there could be no further charges to the card.
Because of the missed payment, Lyndsay incurred a $25 fee and $0.07 in interest. Lyndsay called the lender to dispute these amounts and they were reversed on 21 July 2015.
After returning from his trip, Lyndsay made no more purchases or cash advances with the card. Lyndsay continued making payments above the minimum payment amount each month and was gradually reducing the outstanding balance on his account, taking advantage of the low interest rate.
Credit limit reduced
On 27 November 2015, the lender wrote to Lyndsay telling him it had reduced his credit limit from $49,700 to $11,000, effective immediately. The lender had conducted a review of its customers’ accounts to ensure customers were not taking on debt they could not afford. The lender had based its decision in Lyndsay’s case on a number of factors including his repayment pattern and history.
On 8 December 2015, Lyndsay contacted the lender and expressed dissatisfaction with the decrease in his credit limit. The lender wrote to Lyndsay on 24 February 2016 and said the reason for reducing Lyndsay’s credit limit was because he had missed the first $51 payment by the due date. Lyndsay found the response unsatisfactory.
Lyndsay contacted FSCL. Lyndsay said he appreciated his lender could make commercial judgment decisions to reduce customers’ credit limits. However, Lyndsay considered the reduction in his credit limit from $49,700 to $11,000 (and without warning) to have been out of proportion to him missing the $51 payment. Lyndsay wanted his lender to reinstate the original credit limit on his card, and to apologise to him for both the reduction and for the way its staff handled his complaint.
The lender’s response
The lender said when the first payment of $51 was not received on the due date, the account fell into arrears. In addition, Lyndsay had used the cash withdrawal facility to withdraw $4,900 within the space of a month between 15 June 2015 and 14 July 2015. These factors caused Lyndsay’s account to raise a flag.
The lender pointed to its terms and conditions giving it the power to unilaterally reduce a customer’s credit limit, and afterwards notify the customer of its decision (the credit limit clause).
We looked at the lender’s full terms and conditions. Although the credit limit clause appeared to allow the lender to unilaterally reduce a customer’s credit limit without notice, another clause indicated the lender needed to give a customer notice it was going to amend a credit limit.
In our view, there was ambiguity in the terms and conditions, and we applied the contra proferentem rule. That is, where a contract is ambiguous, the interpretation that favours the party who did not write the contract is to be preferred. We preferred the interpretation in Lyndsay’s favour – the lender was required to notify him before reducing his credit limit.
By giving notice, Lyndsay may have had the opportunity to contact the lender and explain that:
a) he had a high income and could service the credit card, and
b) his intention was always to charge a high amount to his credit card on his trip, and take advantage of the low interest rate while only making minimum repayment amounts.
It appeared the lender’s decision to review Lyndsay’s credit limit was a computer-generated response.
When the $51 payment was missed, the lender’s computer systems automatically thought Lyndsay could not afford to have such a high credit limit. The computer system did not appear to have considered the fact Lyndsay then paid the $500 amount on 20 July 2015 which covered not only the $51 missed payment, but also the next minimum repayment amount ($419).
It appeared likely when Lyndsay missed the $51 payment, it ‘tipped him over’ into the group of customers the lender’s computer system flagged as requiring an account review. However, we agreed with Lyndsay that the reduction in the credit limit by such a large amount in relation to the missed payment (which was rectified by Lyndsay very quickly), indicated the lender’s computer systems were too sensitive or inflexible.
We said the lender should have given Lyndsay notice of its intention to lower his credit limit. This may have given Lyndsay the opportunity to discuss the situation with the lender and assure it he was able to service the credit card. Whether the lender would have left the credit limit at $49,700 was unknown.
Lyndsay had not suffered any financial loss as a result of the lender’s actions. However, we considered the lender should compensate Lyndsay for the inconvenience its actions caused him – he lost the opportunity to discuss the lender’s decision to reduce his credit, and he no longer had access to $38,700 of credit. We suggested to the lender that it pay Lyndsay $250 in recognition of the inconvenience caused.
Both parties accepted our suggestion and the complaint was resolved.
The increased use of automation by financial service providers mostly results in greater efficiency and a better customer experience. However, there remains room in many situations for there to be ‘human oversight’ so that the situation in Lyndsay’s case does not occur.