Tracy wanted to buy a new car, and saw one advertised for $15,000. The dealer offered to arrange finance for Tracy, so Tracy gave him her bank statements and pay slips. The dealer passed the information on to the lender who calculated that Tracy could afford the repayments with a weekly surplus of $63. On 1 April 2021 Tracy signed the loan agreement, agreeing to repay a total debt of $20,000 at $155 a week.
The first payment, due on 7 April 2021, was dishonoured due to insufficient funds. On Saturday 10 April 2021 Tracy called the lender asking why they had debited her account. Tracy believed she was supposed to be paying $155 fortnightly, and she had not allowed for the debit to be made on 7 April 2021. The lender said that the loan agreement recorded repayments of $155 a week. Tracy said there had been a miscommunication with the dealer and that she only agreed to pay $155 a fortnight. Tracy also said that the dealer had not given her a copy of the loan agreement and she asked the lender to email it through to her.
Because Tracy had called the lender on a Saturday, a senior staff member was not available to discuss Tracy’s concerns and the lender said someone would call Tracy back on Monday.
When Tracy did not hear back from the lender on Monday, she called on Tuesday and spoke to a senior manager. By now Tracy had a copy of the loan agreement showing that the loan repayments were $155 weekly, not fortnightly as she believed. Tracy said that she could not afford weekly payments of $155 and asked the lender to recalculate the loan based on fortnightly $155 payments. When the lender said this was not possible, because it would extend the term of the loan, Tracy asked to cancel the loan agreement and give back the car. The lender said that Tracy was outside the timeframe to cancel the loan.
Tracy managed to make some payments, but she then had a health issue affecting her ability to work and make the loan payments. Tracy was able to utilise a health waiver attached to her loan, but this was eventually exhausted. The lender then provided some hardship relief for three months but, ultimately, Tracy could not meet the $155 weekly payments.
Tracy said that she wanted to complain about the lender but the people she spoke to said that she could not complain and did not give Tracy any information about either their internal complaints process or FSCL. Tracy then complained to FSCL.
Tracy said that the dealer told her the payments were $155 a fortnight and that she would never have agreed to the loan if she had known the payments were $155 a week. Tracy said that the dealer had rushed her out of his office because there were new potential customers in the car yard. Although she signed the loan agreement, she did not have time to read it properly, and was not given a copy to take home.
The first Tracy knew that the payments were $155 a week was when she received a copy of the loan agreement after the first payment was deducted from her account a week earlier than she expected. Tracy said she asked to cancel the agreement, but the lender said it was too late.
To resolve her complaint Tracy wanted to return the car and cancel the loan agreement.
The lender said that Tracy had agreed to pay $155 weekly and had been given a copy of the contract to take home. The lender said that if Tracy wanted to cancel the contract, as she was entitled to do under section 27 of the Credit Contracts and Consumer Finance Act 2003 (CCCFA), she would also need to return the $19,000 owing to them.
We considered whether the lender had done enough to satisfy their obligations under section 9C(3)(b) of the CCCFA to draw the key features of the loan agreement to Tracy’s attention before she signed it, so she could make an informed decision about whether to take out the loan. Although a signed loan agreement is persuasive evidence that the borrower understands the terms of the agreement, it was not the only evidence.
The lender’s diary notes from April 2021 reflected Tracy’s clear understanding that the payment was $155 per fortnight, and in all the following communication Tracy consistently said the payments should have been $155 fortnightly. We were persuaded that, when Tracy signed the loan agreement, she believed she was agreeing to $155 fortnightly repayments.
Under section 27 of the CCCFA, Tracy was entitled to cancel the contract within five working days of disclosure being made. Given Tracy’s submission that she did not receive a copy of the signed loan agreement until 10 April 2021 we had some reservations that disclosure was made on 1 April 2021.
As Tracy had signed the loan agreement on 1 April 2021, the Thursday before Easter, she had until Monday 12 April 2021 to cancel the contract. Tracy asked to cancel the contract on Tuesday 13 April 2021, one day late. However, if the lender had called Tracy back on the Monday, she would have had the opportunity to cancel the contract in time. It was our view that when the timing of the request to cancel was so tight, the lender should have looked more closely at the timeline of events and allowed Tracy to cancel the contract.
We also expressed concern that Tracy had explicitly asked to make a complaint about the lender’s actions, but staff had insisted that she could not complain. As a result, it was months before Tracy realised she could take the complaint further, adding to her frustration.
We were satisfied that if Tracy had known her payments were $155 weekly rather than fortnightly that she would not have signed the loan agreement and bought the car. The timing of Tracy’s request to cancel the contract was extremely tight and the lender may have contributed to her falling one day outside the statutory timeframe.
We said that if Tracy agreed to surrender the car, the lender should extinguish Tracy’s debt. In addition, we decided that the lender should pay Tracy $500 as compensation for the frustration caused by failing to refer her to both their internal complaints process and FSCL.
Insights for participants
If a borrower contacts you very shortly after signing the loan agreement to say that the terms of the loan were not what they expected, you should look closely at the timeline to determine whether the borrower has the legal right to cancel the contract. Even if this falls slightly outside the legal timeframe, we encourage lenders to consider allowing the borrower to cancel that contract.