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If something’s unclear, ask your borrower about it.

Jacinta purchased a car for $15,000 from a car dealership in Nelson in December 2021. Jacinta applied for a loan from a car finance lender to pay for the car.

The salesman at the dealership filled out the loan application form for Jacinta, and Jacinta sent the lender 90 days’ worth of bank statements. The lender approved a loan for $16,500, which included the purchase price of the car and some fees and add-on insurance.

The same week the loan was approved, Jacinta moved out of the house she was renting with her 3 children and another family member and into her mother’s house. This reduced Jacinta’s weekly living costs substantially, but a few months later Jacinta moved back into another rental property.

Jacinta started getting behind on her loan repayments, so she contacted her lender about reducing her weekly repayment amount. She also contacted a financial mentor to help her with her budget.

The lender offered to reduce Jacinta’s repayments temporarily based on the financial hardship she was in. Reducing the repayment amount required some changes to Jacinta’s loan contract, so the lender sent her a loan variation agreement to sign.

Jacinta didn’t sign the loan variation agreement because she couldn’t afford the reduced payments either. Her financial mentor questioned the lender about whether the loan was affordable from the beginning. The lender told Jacinta that she could surrender the car to them to sell if she could not afford her repayments.

Jacinta and the lender couldn’t agree about surrendering the car, and Jacinta was getting further and further behind on her payments, so the lender eventually repossessed the car. The lender then sold the car at auction for $2,500.

After the car sale proceeds were deducted from Jacinta’s outstanding loan balance, she still owed the lender $17,000, which was more than she’d borrowed in the first place.

Jacinta was not happy, so she complained to FSCL.


Jacinta said she didn’t remember telling the lender that she was boarding with her mum when she applied for the loan, and that she didn’t think the loan was ever affordable. Jacinta wanted the lender to waive the outstanding loan balance.

The lender said that they assessed the details in Jacinta’s loan application form and her bank statements, and based on this, they thought Jacinta could afford the loan repayments. The lender was not prepared to waive any of Jacinta’s outstanding loan balance.


We reviewed Jacinta’s loan application form and her bank statements, and copies of her old and new tenancy agreements. We could see that Jacinta had been paying $500 per week in rent before she moved in with her mum.

We asked the lender if they had asked Jacinta how long she planned to stay with her mum, or if they requested a landlord’s letter. It turned out that the lender hadn’t queried Jacinta’s living situation at all.

We told the lender that they should have enquired as to how long Jacinta intended to stay with her mum. We noted that Jacinta had three children, and had only recently moved when she applied for the loan, so we didn’t think it was reasonable for the lender to assume Jacinta would be paying $50 per week in board for the duration of the loan (4 years).

We told the lender that because they didn’t make the necessary inquiries into Jacinta’s living arrangements, it was not appropriate to use the amount of $50 for board in their loan affordability assessment. We told the lender that, instead, they should have included the reasonable cost of rent for someone in Jacinta’s circumstances.

We decided that $500 per week in rent was an appropriate estimate to use in the assessment. When Jacinta moved out of her mother’s house, this was about the amount she began paying for rent again.

After reassessing Jacinta’s income and expenses (at the time she applied for the loan), and substituting $50 board for $500 rent per week, it was clear the loan was not affordable. We told the lender that they had failed to meet their lender responsibilities under the Credit Contracts and Consumer Finance Act 2003 (the Act) because they hadn’t made reasonable inquiries into Jacinta’s expenses to ensure that she would be able to afford her repayments without suffering substantial hardship.

Applying the remedy provided in the Act, we told the lender that they must credit back to the loan account all interest and fees Jacinta paid under the loan contract. This reduced the outstanding balance to $11,000. We told Jacinta that we couldn’t ask the lender to waive the principal amount she borrowed, but that they would need to agree to an affordable repayment plan with her for the remaining $11,000 balance.


Our Financial Ombudsman issued a final decision on the complaint, which Jacinta accepted. This meant the decision was binding on the lender.

Insights for consumers or participants

FSCL sees a large volume of complaints about alleged and actual irresponsible lending that centre around loan affordability. Lenders should remember that, prior to approving a loan, they need to make reasonable inquiries to satisfy themselves that the borrower will be able to repay the loan without suffering substantial hardship. This means taking a deeper look into a borrower’s housing arrangements, particularly when a borrower with dependants says they are paying board only.