Atarangi and Hemi had borrowed money to start a business. The loan was secured by a mortgage over Atarangi and Hemi’s home. The business failed, and Atarangi and Hemi had worked with their lender to try to repay the debt. After about six years of struggling Atarangi and Hemi separated, and Hemi moved out of their home.
Financially overcommitted – property sale only option
In April 2015 Atarangi called the lender and explained she was experiencing financial difficulty, and needed help. The lender’s financial hardship team assessed Atarangi’s financial situation, and discovered she was financially overcommitted by $1,500 a month. The lender considered Atarangi’s only option was to sell her home to repay her debt, and advised it would put recovery action on hold for a month so she could get legal and financial advice.
The lender also said it required Atarangi to start repaying her debt at $800 a week, when her monthly payments had been $2,500 a month. Atarangi agreed to the lender’s request.
Budget adviser becomes involved
Atarangi quickly contacted her local budget adviser, Tina. Tina immediately contacted the lender and said she was reviewing Atarangi’s financial situation and intended submitting a financial hardship withdrawal application to Atarangi’s KiwiSaver provider.
Financial hardship applications to lender and KiwiSaver
The lender said that if Atarangi applied for KiwiSaver funds on the grounds of financial hardship it could not allow Atarangi to take advantage of its own financial hardship concessions and would immediately start recovery action. Tina was surprised by the lender’s reaction, but said Atarangi had no option but to continue with the KiwiSaver application. Tina checked with the lender that the arrears were $3,700 and submitted a KiwiSaver application on this basis.
Loan repayment problems
In late May Atarangi faxed the lender with details of her new bank account, asking the lender to debit the next payment from the new bank account. Unfortunately, Atarangi’s signature on the fax was different to the signature on the lender’s files and the lender did not action Atarangi’s request.
When the payment from the new account was not debited as Atarangi expected she called the lender. During this conversation Atarangi discovered the arrears were actually $6,900 because of monthly interest and fees, as well as a dishonoured loan payment, added shortly after Tina’s conversation with the lender.
Property Law Act notice issued
Also in late May 2015 Atarangi received a Property Law Act notice, adding legal costs of $750 to her debt.
KiwiSaver financial hardship application successful
In early June 2015 Atarangi’s KiwiSaver financial hardship application was successful and Atarangi paid her outstanding debt to the lender. However, because the withdrawal was only $3,700 for this loan, Atarangi was left with insufficient funds to pay other creditors.
At about the same time Atarangi put the house on the market.
Atarangi’s view
Atarangi and Tina had found the lender extremely difficult to work with. They considered issuing the Property Law Act notice was an unnecessary expense. The whole process was very stressful for Atarangi, particularly with regard to debiting the wrong account and failing to communicate with Tina about the arrears on the account.
Atarangi complained to FSCL.
Review
Lender’s reaction to KiwiSaver application surprising
We were very surprised at the lender’s reaction to Tina’s advice that she was applying to Atarangi’s KiwiSaver provider for funds on the grounds of significant financial hardship. We could not understand why the lender would have a policy that a borrower cannot take advantage of the lender’s hardship process at the same time as submitting a hardship application to their KiwiSaver provider. Although both processes relate to hardship, the purpose of each is quite different.
We considered the appropriate response from the lender would have been to put its recovery action on hold while the KiwiSaver application was being considered. The decision to start recovery action caused Atarangi unnecessary stress and expense.
Lender failed to provide information
Although Atarangi’s arrears were $3,700 when Tina first spoke to the lender, the lender should have realised the regular monthly interest was due for payment from the account, which would increase those arrears. The lender knew Tina had only just become involved and was about to submit an application to KiwiSaver. It would have been helpful if the lender had given Tina as much information as possible. As a result, Tina did not apply for enough money from the KiwiSaver provider, and had to prioritise Atarangi’s debts causing both stress and inconvenience.
Concerns about lender’s actions towards Atarangi
We were also concerned that when the lender had assessed Atarangi’s budget shortfall of $1,500 a month, it increased her loan payments from $2,500 to $3,200 per month. If Atarangi couldn’t pay $2,500, she would not be able to pay $3,200.
Finally, if Atarangi’s signature did not match that on the lender’s records, it would have been reasonable for the lender to tell Atarangi so that she could authorise the payment ahead of time.
While we were investigating the complaint Atarangi and Hemi managed to sell the property. Unfortunately, the sale left a residual debt owed to the lender.
Outcome
We proposed that the lender refund the costs associated with the Property Law Act notice and all the interest and costs relating to the overdrawn balance of the account from the time the lender failed to debit the correct account until the loan was restructured following the sale of the property.
We also considered the lender had caused Atarangi a considerable amount of stress and inconvenience. We proposed total compensation of $1,000, $500 to be paid directly to Atarangi and $500 to be credited to Atarangi and Hemi’s remaining loan balance.
The lender and Atarangi accepted our proposed resolution.
Our insight
Budget advisers often provide excellent service to people in financial stress. This complaint could have been avoided completely if the lender had been prepared to work with the budget adviser at an early stage, avoiding unnecessary expense and stress.
