Prisha had an existing personal loan with her lender. In mid-2022, she applied to refinance her loan and borrow more money. The lender approved Prisha’s application.
By early 2023, Prisha was struggling to meet all her financial commitments. Her financial mentor calculated that Prisha had a large budget shortfall.
The financial mentor asked the lender for its assessment of Prisha’s income and expenses from when they approved the loan. The lender had used income of $4,300 a month in their assessment, but Prisha said her monthly wages were less than this when she took out the loan.
The lender explained that they had relied on other income sources that were on Prisha’s bank statements. They showed child support income, Working for Families tax credits, and a Work and Income allowance.
The lender was unable to resolve Prisha’s concerns and she asked FSCL to investigate her complaint.
To resolve her complaint, Prisha wanted the lender to:
- waive the additional money, $8,000, that she had borrowed in 2022
- reimburse all loan repayments she had made since she refinanced in 2022
- not charge any fees and interest on the loan.
We put this proposal to the lender to consider, but we explained to the parties that the proposal was not a realistic outcome if FSCL upheld the complaint.
We do not usually suggest that the lender should waive part of the loan principal (the money the consumer borrowed) or reimburse loan repayments. Our general approach, where we uphold a complaint about a lender’s affordability inquiries, is that we say the lender should waive all fees and interest on the loan. This means the borrower repays the money they borrowed (the loan principal).
In cases like Prisha’s case, where the loan includes consolidated debt, our general approach is that the lender is not required to waive interest on the existing debt. The borrower was always going to have to pay interest on that debt and requiring the lender to waive interest on that part of the loan may mean the borrower is unjustly enriched.
The lender did not agree to Prisha’s proposal, but made an offer to resolve the complaint that Prisha accepted.
The lender reduced the loan balance by $8,000 and agreed not to charge any further fees and interest on the loan. Prisha agreed to repay the remaining debt, $12,000, at $220 a month which was affordable for her.
Insights for consumers
It is rare that a lender will offer to waive the loan principal. A lender will usually only offer to do this if there are exceptional circumstances, such as illness or problem gambling, that mean the borrower is not able to repay the money they borrowed.