In November 2020, Holly borrowed $14,000 to buy a car. The loan term was three years and four months, and Holly was to repay the loan at $134 per week.
Holly did not make the first payment. The lender contacted her, and Holly asked if she could cancel the contract. She said she did not want the car because she needed a reliable car to transport her children, and this car had a broken gearbox and other problems. The lender told Holly that the 5-day timeframe for cancelling the contract had passed. They said she would need to contact the dealer to sort out the problems with the car. They also said she would have to continue to make the loan payments.
Holly made some erratic loan payments over the following months. The lender contacted her regularly about the missed payments. Holly explained she was taking the dealer to the Motor Vehicle Disputes Tribunal. She also said she had lost her job and could only afford $50 per week for her loan. She was going apply to WINZ for assistance.
However, WINZ was unable to assist, and Holly did not take the dealer to the Tribunal. She continued to use the car.
Holly stopped communicating with the lender and, by June 2021, the arears were $1,600.
The car was repossessed in July 2021 and, in August 2021, it was sold for $2,200.
The lender referred the debt to a debt collection agency, who attempted to reach a repayment arrangement with Holly for the debt of $13,700. Given her financial situation, Holly was unable to make any payments.
Holly contacted a financial mentor, who complained to the lender that they had failed to carry out a proper affordability assessment when approving Holly’s loan. The financial mentor said that had the lender done so, they would have discovered that Holly did not have sufficient income to cover the loan payments.
The lender considered they had carried out a proper affordability assessment, and this had shown that Holly had a net surplus of $315 per week.
As the complaint was not resolved through the lender’s internal complaints process, Holly’s financial mentor contacted FSCL.
Holly’s complaint was about irresponsible lending. The financial mentor said the lender had breached the lender responsibility principles set out in the Credit Contracts and Consumer Finance Act 2003 (CCCFA).
We asked for information from the lender about how they assessed the affordability of the loan. The lender’s file showed that Holly had declared an accommodation cost of $50 per week. She had been living with her brother because she had not been able to find her own place.
The financial mentor said that Holly and her children were temporarily living with her brother. It was not a long-term arrangement. Holly later moved into more expensive rental accommodation.
We asked the lender for their response to the financial mentor’s concern that they had accepted Holly’s declaration of her accommodation expense of $50 per week.
The lender reviewed their files again. While they did not agree with everything the financial mentor had said, the lender noted the comments about affordability, as well as Holly’s current inability to make any payments towards the debt.
The lender offered to write off the remaining balance of Holly’s loan.
Holly was very happy with the lender’s offer, and accepted it.
Insights for participants
This case was a good example of a lender making a fair offer to resolve a case rather than going through a full investigation.
We would also encourage lenders, when assessing a loan application, to carefully consider declarations of accommodation costs that are considerably lower than the relevant benchmark. While a borrower living with a family member may have low accommodation costs, such arrangements are often temporary, and the lender should take this into account in their assessment.