Is a revolving credit agreement affordable?

Luke purchased items costing $204 from a mobile trader in August 2015. The trader also loaned him the money to purchase the items under a revolving credit agreement, and Luke’s payments were $20 per week. Interest was at 19.5% per annum, with $6 monthly account fees. Luke’s credit limit was $240.

Luke’s first few $20 payments dishonoured. He also made several more purchases, soon taking him over his $240 credit limit. Luke then had periods where he struggled to pay, and he reduced his weekly payments to $14 in 2018 and then down to $11 in 2021. By July 2022, the balance of Luke’s debt was $1,500.

Around this time, Luke lost his job and could not afford to make any weekly payments. He made an unforeseen hardship application to the lender and asked whether he could defer making payments for the 14-week stand-down period until he started receiving his WINZ benefit.

Luke’s hardship application was declined, and he complained to FSCL.


Luke complained that the lender did not follow the correct process when assessing his unforeseen hardship application and wanted them to give him a 14-week break from payments while on a benefit stand-down and refund some fees and interest. Luke also complained that the lender incorrectly placed default entries on his credit file with credit agencies and, as a result, he couldn’t apply for more credit. Luke asked the lender to remove those listings.

The lender’s view was that they had not declined Luke’s hardship application. They said they were waiting for Luke to provide supporting documentation, but he refused. Because of a breakdown in communication, the lender found it difficult to resolve the matter internally. The lender said that if Luke paid 80% of the amount owing ($1,200), they would write off the remaining debt. Luke declined the offer – he didn’t have $1,200 to pay.


Given that Luke had defaulted immediately on his payments, we reviewed whether the lending was affordable. 

We discovered that the original application was done over the phone and approved without Luke supplying any supporting documentation. The lender did an affordability assessment by discussing Luke’s income and expenses over the phone and the amount he considered he would be comfortable paying. The lender did not do any independent checks or affordability assessment.

Luke made several purchases quickly taking him over the credit limit of $240. However, the lender did not do any further affordability assessments when allowing Luke’s credit limit to increase, and fees and interest kept accumulating.

We thought that the lender may not have met their responsible lending obligation under the Credit Contracts and Consumer Finance Act 2003 (CCCFA), to make reasonable enquiries to be satisfied that Luke would likely be able to afford to make payments without suffering financial hardship.

We asked the lender to consider resolving the complaint early by writing all fees and interest off Luke’s debt, this being the remedy if our financial ombudsman found there was irresponsible lending.

The lender said that although they did not agree with our view on the complaint, they wanted to bring the matter to an end and agreed to write off all interest and fees. They said it would cost them more in time, legal fees, and case fees, to progress the matter further.


Once the lender had written off all the interest and fees, it meant that Luke was due a $1,470 refund. Luke was delighted and accepted the refund to resolve his complaint. Receiving the refund made a huge difference to Luke. He told us it was the first time he felt someone had listened to him about his complaint.


The responsible lending obligations under the CCCFA have been in place since June 2015 and, although additional obligations were placed on lenders from December 2021, in 2015 there was still a requirement that lenders obtain supporting documentation to check that the borrower was able to afford the loan. Further, affordability assessments should be carried out as the credit limit increases.

This case was also a great example of a lender making an appropriate decision to take a pragmatic approach and resolve the complaint early, without it having to go right through our investigation process.