Food costs underestimated

Mikaere borrowed approximately $18,000 in July 2021 to buy a car. He was receiving income from Work and Income New Zealand (WINZ), including an unsupported child benefit for a child in his care at the time. Mikaere immediately and repeatedly defaulted on his weekly loan repayment of $155 a week. A family member helped Mikaere return the car to the lender.

The lender sold the car, leaving a residual debt which Mikaere struggled to repay. With the assistance of a budgeting service, Mikaere complained to FSCL that the loan was unaffordable.


Mikaere said that the loan was unaffordable and left him in a weekly deficit. He said that the loan was particularly unaffordable when the unsupported child benefit stopped soon after his loan application was accepted, meaning that his income had decreased.

The lender said that their assessment of Mikaere’s bank statements showed that he could pay for necessities and his current expenses as well as service the loan without facing hardship.


We found that the lender had not met their lender responsibility under section 9C(3)(a) of the Credit Contracts and Consumer Finance Act 2003 (the Act), as they could not have been reasonably satisfied that Mikaere could make the loan repayments without suffering substantial hardship.

The lender had estimated Mikaere’s weekly food costs as $115 for himself and one dependent child. We referred to Inland Revenue’s 2020 Household Expenditure Guide (the Guide) for someone in Mikaere’s position and found that the estimated cost should have been closer to $200. We considered the Guide to be a fair and objective resource to estimate Mikaere’s weekly food expense as it reported the average expenditure for similar households in the same region.

After adjusting the loan affordability assessment for the new food figure, the loan put Mikaere in a weekly deficit of approximately $50 a week. Mikaere’s default on his first and subsequent repayments was further evidence that the loan was unaffordable.

As we found the loan to be unaffordable, we did not consider it necessary to look into Mikaere’s income or any enquiries the lender made around the ongoing nature of the unsupported child benefit. We noted that we did not see any evidence that the lender attempted to clarify whether the benefit would be consistent throughout the term of the loan.


We were satisfied that it was appropriate to apply the remedies outlined in section 89(1)(aaa) of the Act. The lender was to credit the amount Mikaere had already paid in interest and fees back to his loan account. No further interest or fees could be charged to the loan. The lender should then agree on an affordable repayment plan with Mikaere for the remaining loan balance.

Insights for participants

Lenders should check against a reputable external expenditure guide that all estimated expenses for a potential borrower are reasonable for someone in their position. Further, where it is unclear that a particular source of income will continue throughout the term of the loan, lenders should consider enquiring further.