Ben’s representative complained that Ben’s car loan was not affordable. Ben applied for the loan in June 2021.
The representative told us that Ben was struggling financially when he applied for the loan. Ben was supporting himself and his daughter when he applied for the loan, and they were living with a family member temporarily.
The lender used a benchmark to estimate Ben’s rent expense, because there was no evidence of rent payments in Ben’s bank statements. Ben’s representative said that Ben started renting shortly after applying for the loan, so his rent expense had increased considerably.
The lender pointed out that Ben had never missed a loan repayment. However, Ben’s representative told us that Ben had borrowed from other lenders to cover his basic living costs so that he could meet his loan repayments.
Ben’s representative asked FSCL to investigate the complaint in July 2023.
Dispute
Ben’s representative said that the loan was unaffordable. Ben’s representative wanted the lender to waive Ben’s outstanding loan balance.
Ben’s representative was particularly concerned that the lender had underestimated Ben’s rent expense. Ben’s representative said that the benchmark the lender used was not reasonable in the circumstances.
The lender said that they had met their responsible lending obligations. The lender completed an affordability assessment when Ben applied for the loan. After considering Ben’s spending on necessities like food and utilities, the lender found that Ben had a budget surplus.
The lender also said that Ben had never made a financial hardship application with them. The lender said that they could not be expected to know that Ben was experiencing financial difficulty if he did not communicate that to them.
Review
We looked at the lender’s affordability assessment and considered the account statements for Ben’s other loans.
We had concerns about the lender’s affordability assessment. The lender used a benchmark to estimate Ben’s rent expense because Ben was staying with a family member when he applied for the loan and there was no evidence of rent payments in Ben’s bank statements. We thought that the absence of rent payments in Ben’s bank statements should have prompted the lender to make further inquiries about Ben’s living situation, especially how long he expected to stay with family. We considered that the benchmark the lender relied on to estimate Ben’s rent expense was not reasonable.
Though Ben had never made a formal financial hardship request to the lender, he had asked the lender whether his repayments could be reduced for a period because his circumstances had changed. We thought that the lender should have made further inquiries about Ben’s situation.
Resolution
We recommended that the lender waive all interest and fees on Ben’s loan, credit the amount of the waived interest and fees Ben’s outstanding loan balance, and agree to an affordable repayment plan for Ben’s residual debt. This is our general approach where we find that a lender did not meet their obligation to make reasonable inquiries to be satisfied that it was likely the borrower would make their loan repayments without suffering substantial hardship. The lender offered to resolve Ben’s complaint on these terms.
Ben accepted the lender’s settlement offer. The offer resulted in a credit on Ben’s loan balance, which the lender agreed to refund to Ben’s personal bank account.
Insights for participants
Lenders must carry out a thorough affordability assessment before advancing a loan. If a borrower’s bank statements do not show spending on a necessity, such as rent, lenders must make further inquiries to be satisfied that the borrower will be able to make their repayments without suffering substantial hardship.
Where lenders cannot verify a borrower’s expenses against their bank statements, they must use a reasonable benchmark as an estimate.
