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Consumer contributes to a difficult financial situation

In 2022 Sophie applied for a $20,000 loan to consolidate four personal loans totalling $19,000, and $1,000 for her own purposes. Sophie had been paying the four lenders a total of $1,050 a month and the debt consolidation would reduce her monthly loan repayments to $750. The lender assessed the loan as affordable leaving Sophie with a weekly budget surplus of $100. The lender approved the loan on the condition that Sophie repay all her existing debts and include her father as a co-borrower.

Before signing the loan agreement, Sophie emailed the lender saying that she would not repay one of the personal loans because that lender had told her the early repayment cost was too high. The lender did not respond to Sophie’s email and Sophie kept the portion of the loan that related to the unpaid debt, about $3,500.

Nearly two years later Sophie asked to reduce her loan repayments to $500 a month because her partner had lost his job, and they were struggling financially. The lender asked Sophie to complete a hardship application, but she did not and instead went to a financial mentor for help.


Sophie’s financial mentor was concerned that the original decision to lend may not have been affordable and asked the lender to refund all the interest and fees charged, not charge interest and fees in the future, and reduce Sophie’s payments to $520 a month. The financial mentor was concerned that Sophie’s father had been included as a co-borrower to the loan when he was living in a different town to Sophie and that the lender had under-estimated Sophie’s living costs.

The lender said they were satisfied with their lending decision and did not agree to the financial mentor’s proposed resolution. Sophie’s financial mentor complained to FSCL on Sophie’s behalf.


We reviewed the affordability assessment and were satisfied the lender had correctly calculated Sophie had a $100 weekly surplus after making the new loan repayment. We could see that the lender was trying to help Sophie and, even if we had decided that the lending was unaffordable, we would not have expected the lender to refund the interest and fees charged on the debt refinanced. This was because the debt consolidation had improved Sophie’s financial position. At most, the lender could only have been expected to refund the interest and fees on the cash amount ($1,000) that was paid to Sophie.

We noted that Sophie had told the lender that she would not be repaying one of the creditors. We would have expected the lender to reduce the loan by the amount that was no longer being paid to that creditor.

However, when we looked at the complaint in the round it seemed to us that Sophie had heavily contributed to her situation. Sophie had kept money that she knew should have been paid to another lender as part of the debt consolidation. She had then borrowed more money from other lenders. When we discussed these concerns with the financial mentor, she agreed that the lender was not obliged to refund the interest and fees charged, but hoped the lender could restructure the loan to make it more affordable.

The financial mentor also confirmed that Sophie’s father did not want to complain about the lender’s actions.

We then spoke to the lender who agreed to reduce the interest rate from 16.95% to 14.95%pa and restructure the lending over a 38-month term, reducing Sophie’s payments to $600 a month.


Sophie’s financial mentor agreed this looked like a good resolution and confirmed it was affordable for Sophie. However, the financial mentor was unable to contact Sophie to discuss the offer. We could not keep the complaint file open indefinitely while we waited for Sophie to respond so we closed our file.

Insights for consumers

If we are satisfied that a lender has complied with their responsible lending obligations, we will tell you. We will then work with the lender to help find a way forward. We were disappointed that Sophie disengaged from the process because the lender was genuinely interested in working with Sophie and her financial mentor.