Jordan applied for a $30,000 loan from a peer to peer lender. Before drawing down the loan he asked if it was possible to repay the loan fortnightly rather than monthly. The lender confirmed that once the loan was drawn down fortnightly payments could be set up.
Jordan went ahead with the loan, and asked the lender to repay the loan fortnightly. The lender confirmed that the payments would be fortnightly. When the first payment was debited to Jordan’s bank account it was for half the monthly amount. Jordan complained that the loan had not been restructured. Jordan expected his fortnightly payments to be less than half of the monthly payments.
The lender explained that, because it is a peer to peer lender, all loans are structured on a monthly basis. Although it can allow borrowers to repay a loan fortnightly, or even weekly, the total monthly amount must remain the same, because the people funding the loan are expecting to receive a monthly amount. Given the structure of its lending, it is not feasible for a peer to peer lender to allow borrowers to vary the loan structure. All the information available to Jordan, including the loan agreement and disclosure statement, referred to monthly repayments.
Jordan did not accept the lender’s explanation and complained to FSCL.
Jordan said that the lender’s statement that he could make fortnightly payments was misleading. He felt the lender should have told him that the fortnightly payments would be half the monthly payments. Jordan refinanced his loan with another lender and asked that the lender refund the $450 administration fee and interest charged.
It seemed to us that the lender and Jordan were speaking at cross purposes when Jordan asked if the payments could be made fortnightly. Strictly speaking the lender’s advice was correct. Jordan could make fortnightly payments, but he would not receive the benefit of a lower payment because he was obliged to pay a set amount each month. We could understand how the confusion came about.
We suggested the lender refund the $450 administration charge if Jordan would agree to pay the interest incurred on the loan.
Both Jordan and the lender accepted our proposal and the complaint was resolved.
Insights for consumers
Peer to peer lending can operate differently to bank loans. Because the funds are coming from a number of sources (other persons investing in the loan) peer to peer lenders are not as flexible as other lenders.