Like it or lump it – the benefits of an early lump sum payment

The loan history

Kate took out a loan in 1999 with a loan company, Last Century Finance Limited, for around $750. Kate’s loan went into arrears and in 2002 another loan company, This Century Finance Limited, purchased the debt. Payments continued to be irregular.

 

In 2004 This Century Finance obtained a court order stating that the balance of the debt was $5,362 and that Kate had to pay the debt at $10 per week (“the attachment order”). Kate made payments as per the attachment order and also reduced her payments to $7.50 a week at one stage.

 

In 2013 This Century Finance filed further court proceedings against Kate, seeking payment of around $11,000. Kate did not agree that the loan balance should be that high, and contacted her local community law centre. The law centre referred Kate to FSCL.

 

Deadlocked

This Century Finance said that if Kate or the law centre had ‘bothered’ to contact This Century Finance before contacting FSCL, they would have learned that the loan balance had been ‘reworked’ and was now around $3,400.

 

We told This Century Finance that it should have proactively contacted Kate about the reworked balance, and in any event, when we put the figure of $3,400 to Kate she did not accept it. We told This Century Finance that we considered the complaint to be deadlocked.

 

The report

When This Century Finance sent its report on the complaint, we found the balance of the debt at around $3,400 was correct. This Century Finance had continued to apply monthly statutory interest (at 8.4%) to the balance of the debt while Kate was making payments under the attachment order. This Century Finance was entitled to do this, under section 65A of the District Courts Act 1947.

 

We spoke again with Kate about our views in relation to the balance of the debt. Kate wanted to resolve the complaint as soon as possible and offered to make a $2,500 lump sum payment to settle the debt fully and finally. This Century Finance agreed to accept the $2,500 lump sum, resulting in an early resolution of the complaint.

 

Lessons to be learned:

FSCL will consider a complaint to be deadlocked and open an investigation if it appears that the complaint has been raised with the scheme participant and remained unresolved for more than 40 working days.

 

Section 65A of the District Courts Act 1947 states that statutory post-judgment interest should accrue month to month and not week to week, and is something debtors should be mindful of when reviewing their account statements.