Leo took out a $1,500 personal loan in December 2021. Soon after Leo took out the loan, he fell behind with his repayments.
Leo’s financial mentor complained to the lender about the loan after she requested the lender’s affordability assessment. The financial mentor said the lender had not considered two other debts Leo had when they assessed his loan application. Bank statements Leo had given the lender when he applied for the personal loan showed the debt repayments.
The lender agreed they had missed the two debts and that they should not have lent to Leo. The lender reimbursed all fees and interest they had charged Leo. This left him with $270 to repay.
The financial mentor wanted the lender to reimburse all payments Leo had already made to the lender (a total of $1,230). The lender did not agree to this, but they waived the $270 balance owed on the loan and closed the loan account.
The financial mentor complained to FSCL on Leo’s behalf, seeking a better outcome.
Dispute
The financial mentor wanted the lender to refund all payments Leo had made to the lender and pay compensation equivalent to 25% of the loan principal. Leo had experienced significant financial hardship and stress because of the loan. He had gone into arrears on other debts, and one of the other lenders had threatened to repossess Leo’s car.
The lender did not agree to refund payments Leo had made to them, but offered Leo $300 on a goodwill basis to resolve his complaint.
Review
We concluded that the lender’s offer was fair.
The lender’s decision to reimburse all interest and fees they had charged Leo was consistent with our general approach to complaints where a lender has failed to make reasonable inquiries before entering into a loan. The resolution we usually propose is that the lender should refund all interest, credit fees, and default fees they charged the borrower.
The lender’s offer of $300, in addition to the $270 loan balance they had already waived, seemed fair to recognise the stress and inconvenience the loan had caused Leo, bearing in mind that he had benefited from having use of the loan principal.
Resolution
Leo accepted the offer in final settlement of his complaint.
Insights for participants
When considering complaints where a lender has breached their obligation under the Credit Contracts and Consumer Finance Act 2003 to make reasonable inquiries before entering into the loan, we may award compensation for non-financial loss. If the negative impacts of the loan outweighed the benefits to the borrower, and this causes the borrower significant stress or inconvenience, we may consider it fair for the lender to pay compensation for non-financial loss (in addition to refunding all interest, credit fees, and default fees the lender charged the borrower).
