Anna and her partner Chris were starting a farming venture. Although Anna had no experience of farming, Chris had lived in a farming community all his life. Anna agreed to borrow $20,000 in her name to buy a ute for the farm. Anna anticipated that Chris would make the loan repayments. Chris did not make any loan repayments and the loan fell into default.
When the lender contacted Anna about the debt, Chris became involved, promising to make the loan repayments. Anna and Chris made some payments, but the payments were sporadic and unreliable. Anna and Chris separated, and the payments stopped. Anna said that she had been the victim of domestic violence.
The loan balance increased to $25,000 and the lender started repossession action but discovered that the ute was virtually valueless.
When Anna said she could not afford to repay the $25,000 the lender agreed to reduce the debt to $15,000, being the $20,000 originally borrowed less the payments Anna and Chris had managed to make, but Anna said that she could not pay that either.
Anna complained to FSCL.
Dispute
Anna said that when the loan was applied for, the lender had not asked her for any information about loan affordability. At the time, Anna was a student working part time at a café. She had no ability to repay the debt and thought the payments were going to come from the farming venture’s income. Anna also felt that the lender knew that the loan was really for Chris and had conspired with him to persuade her to borrow money in her name for Chris’s benefit.
The lender said that Anna had signed a declaration of financial status as part of the loan application, agreeing that she could afford to repay the debt. The lender also completed a credit check and had no reason to believe Anna would not be able to repay the loan. Anna had signed the loan agreement and was legally obliged to pay the loan repayments. The lender rejected Anna’s suggestion that they were in any way involved in conspiring with Chris and did not know that Chris was manipulating Anna into borrowing the money.
Review
We looked at the loan application and found that the lender had not complied with the responsible lending obligations. The fact that a borrower has signed a declaration confirming that they can repay the debt des not absolve the lender of their responsible lending obligations. The responsible lending obligations under the Credit Contracts and Consumer Finance Act 2003 (the Act) are on the lender to ensure the loan is affordable. We explained to the lender that if we were to issue a formal decision, we would be likely to find that they had not met their obligations.
The lender asked us how to resolve the complaint. We said that our usual approach is based on section 89 of the Act, which involves a refund of all interest and fees and allowing the borrower to repay the debt at an amount they can afford over time. The lender said they had already gone part way towards this, by reducing the debt to $15,000.
Anna explained that the consequences of Chris’s financial and physical abuse had left her in a very precarious position. She was trying to put her life back together but owed money to a variety of lenders as a result of his actions.
We spoke again to the lender, explaining our view that their lending process was grossly deficient and, if greater care had been taken, the loan might not have been granted in the first place. We acknowledged that the lender did not know that Chris was taking advantage of Anna. However, we felt the lender should have gathered a lot more information about suitability and affordability before approving the loan.
Resolution
The lender agreed to reduce the debt further, to $7,500, and charge no further fees or interest provided Anna repaid the debt at $20 a week. Anna accepted this proposal, and the complaint was resolved on this basis
Insights for consumers and participants
Economic abuse can be difficult to identify and devastating for the affected person. However, the responsible lending obligations require the lender to gather a considerable amount of information about the purpose and affordability of the loan. If the lender had asked more questions in this case, the loan might not have been advanced.
