In June 2020, Ava and Jerome purchased a truck and trailer for their business on hire purchase for $209,000. Two hire purchase schedules were signed – though both schedules had the same schedule number by mistake. The finance company crossed out the number on one schedule and wrote a different number on it. Under their contracts with the finance company, Ava and Jerome made monthly repayments of $1,600 for the trailer and $1,900 for the truck. They paid these amounts by direct debit.
In September 2022, Ava asked the finance company for the settlement amount for “this loan”. The finance company responded, providing the settlement amount for the truck: $60,000. Ava and Jerome then sold the truck and trailer for $207,000. They paid the $60,000 to the finance company, which released the security interest over both the truck and trailer.
Ava and Jerome believed they had settled the debt, but then they noticed a direct debit payment from their account to the finance company. When Ava and Jerome queried this, the finance company explained that Ava and Jerome still owed $50,000 for the trailer. They disputed this, and they asked the finance company to stop the direct debit.
Ava and Jerome were unable to resolve the matter with the finance company so Ava and Jerome engaged their lawyer to correspond with the finance company. The lawyer mentioned taking a complaint to the Insurance and Financial Services Ombudsman. The finance company did not explain to Ava and Jerome’s lawyer that the finance company were a member of FSCL until nearly a month later. When Ava and Jerome’s lawyer was unable to resolve the matter with the finance company, Ava and Jerome asked FSCL to investigate their complaint.
The finance company agreed to stop the direct debit before FSCL started our investigation but, by the time the finance company had agreed to do this, Ava and Jerome had closed their bank account to make sure the finance company did not take any more payments from Ava and Jerome’s bank account.
Dispute
Ava and Jerome believed they did not owe any money to the finance company. They said there was only one contract, and they had paid that in full. They said they had relied on the settlement statement provided by the finance company and had spent the funds they received from the truck and trailer sale in the belief they did not owe anything further to the finance company.
The finance company said there were two contracts: one for the truck, and another for the trailer. They said this should have been obvious to Ava and Jerome, because there were two direct debits which had the two contract numbers on them. The finance company said it should have also been apparent to Ava and Jerome that the settlement statement they had provided was only for the truck. Ava and Jerome could not have reasonably believed they only owed $60,000.
Review
We found there were several errors on the finance company’s part, including:
- They made mistakes with the schedule numbers when the schedules were prepared, and there was no evidence they gave Ava and Jerome a copy of the handwritten amendment to one of the schedule numbers.
- They only gave the settlement figure for the truck, when Ava had not specified which hire purchase she wanted the settlement figure for.
- They released their security interest over both vehicles, despite the hire purchase for the trailer not being paid off, which contributed to Ava and Jerome’s misunderstanding that they had settled both hire purchases.
Despite these errors, the schedules were both enforceable. In 2020, Ava and Jerome had agreed to pay the finance company $209,000 for the two vehicles – and they still owed $50,000. There had been no agreement that the payment of $60,000 would satisfy Ava and Jerome’s total obligations to the finance company.
We also found that the mistakes had not caused Ava and Jerome a financial loss. We thought they would still have sold the truck and trailer if they had been given the settlement amount for both the truck and trailer, and there was no evidence they had changed their financial position based on a belief they had repaid the finance company in full. They had used the sale proceeds to pay bills which they would have had to pay regardless of the misunderstanding with the finance company.
However, we found that the finance company had caused Ava and Jerome stress and inconvenience. The finance company hadn’t provided information about FSCL promptly when it became clear Ava and Jerome wanted to know about the disputes process. The finance company also hadn’t promptly stopped Ava and Jerome’s direct debit.
Outcome
We decided that the finance company should pay Ava and Jerome $2,000 for the stress and inconvenience the finance company had caused. We also decided that the finance company should refund the default fees and interest they had charged Ava and Jerome since they complained. We also offered to assist the parties to negotiate an agreement for the repayment of the remaining $50,000.
The finance company accepted our decision, but Ava and Jerome did not. They did not think it was fair that they had to pay the finance company the $50,000.
As we could not further assist Ava and Jerome, we closed our file.
Insights for consumers and participants
Mistakes can happen, but these don’t necessarily invalidate a debt.
When we consider complaints where the financial service provider has made a mistake, we consider whether the consumer relied on what the scheme member did, to the consumer’s detriment. Our approach is similar to the common law doctrine of estoppel. Detriment is a key element of estoppel: there must be evidence that the consumer suffered detriment (a loss or harm) as a result of relying on the financial service provider’s representations or promises.
While we acknowledged the reasons for Ava and Jerome’s view that they had fulfilled their contractual obligations because they paid the settlement figure they were given, their case was not this straightforward. We had to consider what loss or harm Ava and Jerome had suffered as a result of the finance company’s mistakes.
