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Irresponsible lending

In 2009, Janet and John’s daughter Jenny, took out a loan for $4,500. Later the same year, Jenny took out another loan with the lender, bringing her total debt to $30,000. Janet and John made all the repayments on the loan and within a year the balance had reduced to $22,000.

In 2010, the lender consolidated Jenny’s loan into a new loan with a further $28,000 advance, bringing the debt to $50,000. Janet and John guaranteed the loan. Jenny paid very little towards the loan, but Janet and John continued to meet the repayment obligations, and the balance dropped to $30,000 by 2014.

At the end of 2014, Janet and John applied for their own loan with the lender. Their application was declined because they were retired and had no source of income or security. Janet and John were struggling to repay Jenny’s loan and so requested, and were granted, a lower weekly repayment amount.

In 2015, despite previously declining to grant Janet and John a loan due to their financial position, the lender transferred Jenny’s loan into Janet’s sole name. Janet’s repayments were lowered again to make repayment more affordable for her.

John passed away in 2016 and Janet continued making the agreed repayments on the loan for three years. Janet was 78 and had been living in extreme poverty while making these repayments. In 2018, a kaumātua of Janet’s hapū brought a complaint on Janet’s behalf to FSCL.



Janet disputed:

  • how the original loan was taken on
  • how it was transferred into Janet’s name
  • that the loan was ever for Janet’s benefit
  • she had felt forced to become responsible for her daughter’s debts.
  • that she had ever requested that the loan be transferred into her name in 2015
  • that she received any independent legal advice when she became a guarantor or when the loan was transferred.

Janet claimed that the years of paying off this loan had caused her financial hardship and resulted in her living in poverty.

The lender said that the consolidation of the loan in 2010 was for Janet and John’s benefit, because it consolidated both Jenny and her parents’ own personal loans.

The lender further disputed the complaint regarding the transfer of the loan into Janet’s sole name. It said that because Janet was the guarantor of the loan, she was already responsible for the repayments if Jenny did not make repayments. The lender claimed that at the time the loan was transferred, it had no evidence of Janet being in financial hardship.



After 6 June 2015, all the loan activity was subject to the new responsible lending obligations in the Credit Contract and Consumer Finance Act (CCCFA), and the Responsible Lending Code. The CCCFA places obligations on lenders to ensure that borrowers and guarantors are able to meet loan repayments without suffering substantial hardship. The CCCFA further requires that the loan meets the borrower’s objectives and that borrowers and guarantors understand the credit contracts that they enter into.

We found that the pre-June 2015 transactions were within the law at that time. However, when the loan was transferred into Janet’s sole name in late 2015, the lender had failed to meet the requirements of the CCCFA because:

  • the lender had failed to take into account any living expenses that Janet might have.
  • the lender had notice that Janet had been struggling to pay her daughter’s loan before it was transferred into Janet’s name.
  • the lender knew that Janet was at the time 76 years old with very little income, and her income was unlikely to increase.
  • there was no evidence that the lender had done any assessment as to whether the loan would meet Janet’s requirements and objectives.
  • there was no evidence that the lender ever explained the full effect of the loan to Janet and so Janet was unable to make an informed decision.

Due to this evidence, we found that the lender had been irresponsible to approve a loan to a person in Janet’s financial position. We found that the lender’s actions breached the CCCFA and the Responsible Lending Code.



We decided that Janet and her family were still liable to pay the principal amounts that were loaned to them and any interest or fees that had accrued before the change in law in 2015. However, we recommended that all interest and fees incurred after 2015 be refunded as compensation for the lender’s breach of responsible lending obligations. This brought the remaining loan down from $16,000 to $9,500. We further recommended that the lender compensate Janet $2,000 for stress and inconvenience, reducing the loan balance to $7,500. The loan was frozen at that amount so that no further fees or interest could be added. Janet agreed to pay off the remaining amount at $50 a week until the loan was fully paid. Janet was happy with this solution.


Insights for participant

It is important for participants to understand their obligations under the CCCFA and the Responsible Lending Code. Due diligence in investigating what borrowers and guarantors can afford, ensuring that borrowers and guarantors understand the terms of the loan, and ensuring that the loan meets the borrower’s objectives, are all important features of the new law that must be adhered to by lenders.