Insights for participants
Poor communication is the root cause of many complaints that come to FSCL.
In all your communications with clients, make sure you have been clear in what you are saying and that there is no room for the client to misunderstand or misinterpret your communication.
Insights for consumers
If you repay a fixed interest rate loan early, the lender is very likely to charge you an early repayment or break fee. Make sure you understand when the fee will be charged and the likely amount of the fee before you decide to repay or refinance the loan.
What happened
Jason owned a small transport business and wanted to buy two vans and have them fitted out to use for small visitor group tours in his home town.
Jason borrowed money to fund the purchase of the vans and also spoke to the lender about obtaining a further top-up loan when he knew the cost of the fitouts.
A few months later Jason sent a few invoices for part of the fitout costs to the lender and asked the lender for a loan top-up to enable him to pay those invoices. The lender said that they could not provide small loan top-ups every time Jason wanted to pay a bill. Rather, they would approve a one off $100,000 loan top-up which Jason could then use to pay for the fitout costs as they fell due.
Jason wasn’t happy with this because it was going to take him some time to complete the fitouts, and he didn’t want his business to be paying interest on the full amount of the top-up loan before it was necessary.
Jason decided to obtain a loan from a different lender who was prepared to give him a line of credit facility so that he only had to draw down on funds as bills became due. Jason repaid his existing loan with the lender and was charged an early repayment fee of $19,000.
Jason complained about the fee, but the lender would not agree to waive it. Jason then complained to FSCL.
What were the parties’ views?
The lender said they had explained to Jason when he obtained the loan to buy the vans that they would only be able to give him a one-off top-up loan for the total fitout costs. They could not give him a line of credit because they did not offer that type of product.
The $19,000 early repayment fee that Jason had to pay was the loss the lender had incurred when Jason repaid the loan early.
Jason said that he had asked specifically about whether the top-up loan for the fitout costs could be paid out in instalments as he provided receipts to the lender. He said the lender didn’t explain they could only lend in one lump sum for the fitout costs. Had he known the lender’s position from the outset, he would have used a different lender for the loan to buy the vans. Jason said that the lender had misled him about the terms of the top-up loan and felt it was unfair he should pay the early repayment fee.
What was FSCL’s view?
After reviewing all the communications between Jason and the lender, we found that they had been talking at cross purposes for much of the time. Some of the emails that passed between Jason and the lender setting out Jason’s wishes and the lender’s requirements were ambiguous and poorly worded, and we could see how Jason may have thought that he could draw down the $100,000 top-up loan in instalments as bills fell due. On the other hand, we could also see that Jason could have been much clearer about his funding requirements in his communications with the lender.
In our view, both parties had contributed to the miscommunication which had eventually led to Jason refinancing elsewhere and repaying the loan early.
How did FSCL suggest that the complaint should be resolved?
We thought it fair that the parties share the break fee cost, meaning the lender would refund half the fee ($9,500) to Jason.
Both parties accepted our recommendation that the break fee be shared evenly between them.
