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Responsible lending obligations rest with the lender

In October 2022 Parvati saw a car advertised on Facebook at a car yard in Auckland. Parvati contacted the car dealer who told her that she should go on their website and choose three cars that she liked the look of. The dealer would then decide which would be best for Parvati. None of the cars on the dealer’s website had any indication about price. Parvati selected three cars, and the dealer came back to her offering her a 2007 Nissan Fuga.

Parvati still did not know how much the car would cost, but the dealer told her not to worry, he would sort out the finance so she could buy the car. The dealer asked Parvati for her bank statements, payslips, confirmation of benefit income, details of her court fines, and driver’s licence.

Parvati gave all the information to the dealer, and understood he would submit the loan application to the lender. The lender calculated that Parvati’s weekly income was $645, based on benefit payments and income from Parvati’s part-time job. The lender calculated Parvati’s expenses as $345. Parvati’s rent was deducted from her benefit, so was not included in either her income or expenses. The lender calculated that Parvati had a weekly surplus of $300. Allowing for a $90 weekly buffer, the lender was satisfied Parvati could afford the loan repayments of $142 a week.

Because Parvati did not live in Auckland, the dealer paid for her to fly to Auckland to collect the car. When Parvati arrived in Auckland, she discovered the purchase price of the car was nearly $17,000. The lender had calculated, for their own internal purposes, that the car was worth $9,000 but did not share this information with Parvati. Parvati signed a loan agreement borrowing nearly $19,000, including add-on insurance and fees.

Parvati immediately defaulted on the loan repayments. Over the following months Parvati continued to struggle to repay the loan and went to a financial mentor for help. When the financial mentor looked at Parvati’s income, he was immediately concerned that the loan was not affordable and contacted the lender to discuss this.

The lender was satisfied that their lending was affordable and that it had met its responsible lending obligations but could see that Parvati was struggling financially. The lender offered to reduce the interest rate on Parvati’s loan from 29% per annum to 8.5% per annum if Parvati could show she could afford payments of $100 a week.

Parvati’s financial mentor was confident that Parvati would be able to afford the $100 weekly payments. However, the financial mentor did not think that the lender’s offer went far enough. The financial mentor was still concerned that the lender had not met its responsible lending obligations and, after talking it through with Parvati, referred the complaint to FSCL.


The financial mentor said that Parvati was working on a casual, part-time basis and that her income was not regular or secure. Parvati’s payslips, which she had given to the dealer, showed that her income for the last three months was, on average, $475 a week. The financial mentor said that the lender appeared to have made a mistake when calculating Parvati’s income and, as a result, the lending had been unaffordable.

The lender did not accept that the dealer completed Parvati’s loan application form. The lender said that it does not work through dealers and that Parvati entered the information about her income, expenses, and employment conditions directly onto its system. Parvati had said that she was working part-time, earning $640 a week, and if she was a casual employee, she should have recorded this on the loan application. The lender remained of the view that it had met its responsible lending obligations.


As part of our process, we asked the lender for the information that it based its affordability calculations on. The lender had only received bank statements for the previous six weeks, because Parvati had changed banks, and did not have the payslips provided to the dealer.

Although the lender maintained that Parvati had completed the online application form herself, after speaking to Parvati, it seemed more likely that the dealer had taken care of this for her. However, even if Parvati had completed the application herself and estimated her income as $640 a week, the lender was obliged to verify her income. It is standard industry practice for a lender to rely on 90 days of bank statements to verify income and expenses.

If the lender had taken more care, it would have discovered that it did not have 90 days of bank statements and asked Parvati for more information. With the benefit of this information, the lender would have seen that Parvati’s weekly income over the last 90 days varied from $90.15 to $580.74, with an average of $475 a week. Allowing for a 30% buffer, Parvati could not afford the loan and, as a responsible lender, the lender would have declined to lend.

As part of our review, we noted our concerns about the dealer’s sales tactics and queried whether the power imbalance meant that we could say that Parvati was a willing buyer. We also had some concerns that the lender had also underestimated Parvati’s expenses.

However, based on the income calculation alone, the lender had not satisfied itself that Parvati could afford to repay the loan without suffering substantial hardship. The lending breached section 9C(3) of the Credit Contracts and Consumer Finance Act 2003. The remedy for a breach of this section is a refund of all the interest and fees charged over the life of the loan. The lender is also obliged to restructure the loan so that no interest and fees are charged in the future.


Parvati and the lender accepted our preliminary decision. The lender agreed to refund about $6,500 in interest and fees to the loan balance and allow Parvati to repay the loan at $100 a week incurring no future interest or fees.

Insights for participants

The Credit Contracts and Consumer Finance Act 2003 now requires lenders to verify the information given to them by people applying for a loan. While lenders can use ‘scraping’ software to extract information from bank statements to calculate affordability, the responsible lending obligations rest with the lender. In this case, the software did not identify that the calculation was based on six weeks of bank statements rather than the industry standard of 90 days, resulting in an unaffordable loan.