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Loan refunds lead to overdue loan

In 2014 Albert and Kowhai borrowed $42,000 from a finance company secured against their home. If all had gone according to plan, the loan would be fully repaid by August 2018. In 2015 Albert was injured at work, but fortunately he had insurance that covered his loan repayments. The insurer accepted Albert’s claim and started depositing Albert’s share of the loan repayments into the loan account in lump sums. Kowhai continued to pay her share of the loan repayments.

In March 2017 Kowhai applied for a loan top-up of $3,500. The lender replied that the loan was in credit, so she could just withdraw $3,500 without having to go through the formal loan application process. Kowhai agreed and the lender paid Kowhai $3,500.

Later that year, in August, Kowhai asked for a further loan top-up of $2,000 and the lender said that the loan was in credit, so paid $2,000 into Kowhai’s account.

In December 2017 Albert discovered the money that had been paid to Kowhai and asked the lender what was going on. The lender explained that the loan was in credit, so they had just allowed Kowhai to draw against that credit. Albert wasn’t very happy about this, but because he and Kowhai were considering repaying the loan in full, Albert did not take the complaint any further.

In February 2018 Albert and Kowhai agreed that Kowhai would pay off her share of the loan in return for being able to stop her regular loan repayments. Albert would continue to make his share of the loan repayments from the insurance money. The lender accidentally continued to debit Kowhai’s bank account and when Albert discovered this, he asked the lender to refund Kowhai her overpayments.

In August 2018 Albert and the lender discussed the loan payments he would need to make to repay the loan. Albert made one payment, then stopped the payments until August 2020 when he contacted the lender to ask why he still owed about $8,000.

The lender did not provide a satisfactory explanation and insisted the debt was accurate. Albert did not accept the lender’s response and complained to FSCL.



Albert said that he had insurance that should have covered his share of the loan. He could not understand why he still owed the lender money. Albert wanted the lender to write-off the full balance owing on the loan and remove the caveat placed on the property.

The lender said that the insurance had not fully repaid the loan because of the money refunded to Kowhai in early 2018. The lender insisted that their calculation was correct, and the debt was so substantial because Albert had not made any payments for two years. The lender was not prepared to write-off the loan balance or remove the caveat because Kowhai and Albert had had the benefit of the funds.



We discovered that the reason Kowhai had been able to withdraw money from the loan account was because of the lump sum payments made by Albert’s insurer. We suggested to the lender that they should not have allowed Kowhai to withdraw this money without Albert’s permission.



The lender agreed with our view and offered to reduce the debt from $8,000 to $7,000, as an acknowledgement of inconvenience, and pursue Kowhai for her share of the total loan debt, being $5,500 and Albert for the remaining $1,500. We put this offer to Albert, but he said that Kowhai would not agree. We explained that he did not need to get Kowhai’s agreement, and that the lender would talk to her separately about repaying her share.

Albert did not want the lender to talk to Kowhai, so said that he would pay the $7,000. We helped Albert and the lender negotiate an affordable repayment agreement and the complaint was resolved on this basis


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