Laaka had two credit cards with the same lender. Over the years she made purchases on both cards and found no issue in paying off at least the minimum payments each month. When Covid hit, Laaka’s business suffered, and she racked up debts of over $16,000. As her income dried up, Laaka was no longer able to meet the minimum monthly payments and fell into difficulties.
Laaka made no payments on either of her cards for two months. The lender attempted to call Laaka over the following three months with no success. The lender also sent monthly statements which showed the balance was quickly increasing due to fees and interest.
Four months after the last payment was made the lender cancelled both cards due to ‘non-compliance with their payment terms’. The remaining debt on the cards was then transferred to a collection agency.
Dispute
Laaka said that she contacted the lender on numerous occasions trying to come to an agreement to repay the outstanding debt so she could keep the cards. Laaka argued that the lender’s decision to cancel her accounts without notice was unreasonable and that she was very easy to get hold of. She said that she would have expected the lender to warn her that cancelling her cards was an option and, if they had warned her about losing the use of her cards, she would have made a payment straight away. Laaka also stopped receiving paper statements and lost access to her online account.
Laaka complained to FSCL. She wanted the lender to reinstate her accounts, write off some of her debt, as she considered some of the interest charges to be unjustified, and pay her compensation for inconvenience.
The lender did not agree to reinstate the cards and said that they gave Laaka sufficient notice that the cards would be cancelled and attempted to call her more than twenty times. The lender said that in their terms and conditions they were able to cancel the cards at any time without prior warning.
Review
We considered the terms and conditions of Laaka’s cards. We decided that the lender was entitled to cancel Laaka’s cards without notice. While it would have been good practice for the lender to give notice in writing before the cards were cancelled, they were not under any obligation to do so.
We also reviewed the telephone records and saw that the lender made many attempts to contact Laaka.
Resolution
We concluded that it was in Laaka’s best interest for the lender to stop the cards and, as the lender was entitled to cancel her accounts, they did not have to agree to Laaka’s request to reinstate them.
We spoke with the lender, and they agreed to freeze all interest and charges on the debt until the debt was repaid. We worked with the lender and Laaka to arrange a payment plan which Laaka could afford, safe in the knowledge that the debt was not increasing.
Insights for consumers
Credit cards are a common form of consumer credit. However, consumers often underestimate the effect of only paying the minimum monthly payments and having a ‘maxed out’ credit card. If you have debt and are struggling to make at least your minimum payments each month speak with the lender in the first instance. It is in the lender’s interest that the borrower is able to afford to pay the debt and not get into hardship.
