Amani and her husband Akeem borrowed $22,000 in March 2020 to buy a car. The total loan of $42,000 was to be paid over four years at $185 a week. At the time, Akeem was also making payments towards a previous vehicle that had been written-off and Amani was repaying her own vehicle loan at approximately $80 per week.
Amani and Akeem were not living together when they first took out the loan. Amani boarded with her parents and paid them $150 board weekly. Akeem lived in a rental property. Despite this, the couple generally shared living expenses. Amani and Akeem moved in together when they had a baby in April 2021.
In August 2020, the couple borrowed an additional $2,300 to pay for vehicle repairs and a further $1,300 in November 2020. The total repayments for the two top-ups were $60 a week.
Amani and Akeem reliably made the car repayments until December 2020 when they started struggling to make their payments, and from April 2021 they were in constant arrears. The lender issued Amani and Akeem repossession warning notices in April and July 2021, and the vehicle was disabled and enabled several times. The couple stopped paying the loan after August 2021, and the car remained immobilised at their property.
The couple complained to the lender in November 2021, as they had been told they did not qualify for the formal hardship process due to the length of time the payments had been in default. The lender advised Amani and Akeem that they could surrender the vehicle to recover some costs.
Amani and Akeem approached a budget adviser for help. The budget adviser told the lender that the couple did not want to surrender the vehicle as it was likely the car would be sold for a lower sale price than it was purchased for, leaving the couple in debt. Instead, the couple wanted the lender to take the car and write off all remaining debt.
The lender did not agree for write of the remaining debt. The couple, with the budget adviser’s help, complained to FSCL that the loan was unaffordable from the outset.
Dispute
Amani and Akeem said that the loan was unaffordable and left them in a weekly deficit. They said that the lender had failed to include a weekly $300 payment towards Amani’s parents’ mortgage in their expenses assessment, which showed on their bank statements as $300 cash withdrawals. Further, they argued that Akeem’s credit report, which showed $4,000 in default payments, was evidence that further loans would be unaffordable.
The lender said that they had satisfied their responsible lending obligations under section 9C(3)(a) of the Credit Contracts and Consumer Finance Act 2003 (the Act). The lender said they assessed affordability by enquiring into Amani and Akeem’s income and expenses to ensure that they could repay the primary loan and the two top-ups without suffering substantial financial hardship.
Review
The critical issue was whether the lender should have factored in the $300 mortgage payment as a regular expense. If the $300 was included in the affordability assessment the couple’s budget was in deficit and the loan was unaffordable. However, if the $300 was not included, the couple had a significant weekly surplus and could afford the loan repayments.
There was insufficient evidence that the $300 should have been treated as an ongoing regular expense. The couple did not mention this expense for some time after we started investigating their complaint, and there was no documentary evidence to support that the $300 withdrawals were being used for this purpose. Amani’s parents later gave letters that said Amani made payments towards their mortgage, but their letters did not support the figure that the couple had given. Further, the lender could not have known about the $300 weekly mortgage payment. It also seemed unusual that the $300 was paid in cash, when the $150 board was paid by electronic payment.
Although it was our view that the lender should have questioned the cash withdrawals before granting the loan, we were satisfied that the lender could not have been expected to factor this expense into the affordability assessment.
We excluded the $300 mortgage payments from the couple’s affordability assessment, meaning that they could afford all three loans, and the lender had met their responsible lending obligations.
Resolution
We found that the couple should discontinue their complaint. We suggested that Amani and Akeem surrender the car, and we would assist the parties in entering an affordable repayment arrangement.
Amani and Akeem disagreed with our preliminary decision, but their budget adviser did not provide any further information to change our view.
Insights for consumers and participants
Consumers must take care to tell a lender about all their expenses, including those that are paid in cash. Lenders should enquire about any significant regular cash withdrawals.
