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Lending to a vulnerable consumer

Akamu has an intellectual disability. While he had reasonably good verbal skills, he could not read or write and, in his doctor’s opinion, was unable to understand financial transactions. During the 1980s Akamu attended a sheltered workplace, but when that closed, he became a beneficiary. Akamu’s family, in particular his niece, Rebecca, kept an eye on him. More recently Akamu had become a superannuant and started living with Rebecca. In the context of this change, Rebecca reviewed his bank statements.

Rebecca discovered payments to a finance company and, when she explored further, she discovered Akamu owed about $5,000. Rebecca did not understand how a finance company could have loaned such a large amount of money to someone who, in her eyes, did not understand what he was doing.

Rebecca asked the finance company to wipe Akamu’s debt and refund all the payments he had made over the years. The finance company declined, and Rebecca complained on Akamu’s behalf to FSCL.



The finance company disagreed that Akamu did not understand the financial transactions and considered he was liable to repay the debt. The finance company went on to explain that:

  • Akamu had been an excellent customer for many years
  • it was aware that he had an intellectual disability, but said that it always took extra time to go through all the documents slowly with Akamu
  • recently, Akamu had asked questions about early repayment indicating he was capable of understanding the transaction
  • it always contacted Akamu’s two reference people before finalising the lending and had occasionally spoken to Rebecca, but no-one ever alerted it to Akamu’s limited understanding
  • it carefully assessed each application and was satisfied Akamu could afford the loan.

Rebecca said she recalled one telephone call from the finance company some years earlier, but said that she thought Akamu had repaid that loan. Rebecca disagreed that the finance company had contacted her more recently. Rebecca said that each time the finance company approved a loan, Akamu believed he had repaid the last loan. In fact, this was not the case and Akamu’s debt to the finance company was gradually increasing. Rebecca asked us to take a look at the finance company’s decisions to lend.



We reviewed Akamu’s lending history. Over the last 10 years the finance company had approved 12 loans. The first loan, for which we had records, showed a top-up of $800 to a loan balance of $1,800. The history showed repeated requests from Akamu to the finance company asking for more money and, with each approved loan Akamu’s debt increased.

After 6 June 2015, when the responsible lending obligations came into force, we were satisfied the finance company had followed a reasonable assessment process and that Akamu could indeed afford the loan.

However, even without taking into consideration Akamu’s status as a vulnerable consumer, we were concerned about the credit-related insurance sold to Akamu.

There was no evidence that the finance company had followed any insurance application process and it was unable to show us that it had considered whether the insurance would meet Akamu’s needs, as required by section 9C(5) of the Credit Contracts and Consumer Finance Act 2014.

We were concerned that, as a beneficiary, Akamu would not be eligible to claim under the provisions of the policy relating to lost income. Although there was a death benefit, as Akamu had no dependants or assets, this was likely to benefit the lender more than Akamu. We were also concerned that the amount of the lump sum premium, just over half the amount of the loan, was excessive.

Irrespective of Akamu’s status as a vulnerable borrower, we felt the insurance was likely mis-sold and the finance company should cancel the policy and refund the premiums and interest to Akamu.

We then went on to consider the finance company’s decision to lend to Akamu. Under the Credit Contracts and Consumer Finance Act 2003, the finance company is also obliged to help Akamu make an informed decision. Although the finance company had identified that Akamu needed additional assistance, it was difficult for us to determine to what extent

Akamu understood the transaction.

Given his actions we were satisfied that Akamu understood he was borrowing money and needed to pay it back. But we wondered whether he understood that:

  • when borrowing $700, he would pay the finance company $270 as an application fee
  • he had not fully repaid the last loan when borrowing money again
  • his outstanding balance was continually increasing.

In the light of these uncertainties, and our concerns about the credit-related insurance, we invited the finance company to propose a resolution.

Although the finance company did not accept all our observations, it offered to:

  • reduce Akamu’s debt to $2,000
  • waive all future fees and interest
  • allow Akamu to repay the loan at $25 a week.



Rebecca and Akamu accepted the finance company’s offer and the complaint was resolved.


Insights for participants

The term ‘intellectual disability’ describes a broad spectrum of abilities. Some people with intellectual disabilities are able to make financial decisions and live relatively independent lives. For others, such decisions are beyond their understanding. This decision should not be seen as a precedent that finance companies can never lend to people with intellectual disabilities, as such an outcome would be a breach of human rights.

However, responsible lenders are obliged to make sure everyone can understand the agreement they are entering into. For most lending decisions this will be straightforward, but when dealing with a vulnerable borrower, we acknowledge that lenders are placed in a very difficult position, because lenders are not qualified to assess a person’s cognitive abilities. One solution may be, if you suspect the borrower may not understand the agreement, to ask the borrower to bring a support person with them so that you can gather more information about the borrower’s level of understanding.