Insights for consumers
A loan that was affordable can become unaffordable after a job loss or other life change. While lenders must consider whether there is anything they can do to alleviate financial hardship, they are still entitled to charge default fees and interest.
If you experience financial hardship and struggle to repay a loan, keep in contact with your lender, show a willingness to repay what you can, and seek help from a free financial mentor early.
Zadran borrows money to buy a car
In 2022, Zadran* borrowed $9,995 to buy a car. As a condition of his borrowing, Zadran needed to arrange insurance, so he borrowed $14,000 to cover the cost of the car, as well as mechanical breakdown insurance (MBI), payment protection insurance (PPI), and guaranteed asset protection (GAP) insurance. This was arranged through the car dealership.
Redundancy makes repayments impossible
In October 2024, Zadran lost his job and struggled to make the $107 weekly loan payments. He contacted the insurer of his PPI policy, but they declined his claim, saying that the policy did not cover redundancy. Zadran had previously contacted the car dealership and discovered it was no longer in business. He then contacted his lender.
Zadran felt he was being punished
Zadran told the lender about his financial hardship, but default fees and interest were added to the loan every time Zadran missed a payment. Zadran felt like he was being punished for circumstances beyond his control.
When the lender issued a repossession warning notice, Zadran asked for hardship relief.
Was the lender’s remedy reasonable?
The lender offered to increase Zadran’s weekly payments from $107 to $150 so that he could clear the arrears and get the loan back on track. Zadran agreed but often missed payments. He said he wanted to make the payments, but he was struggling to secure a stable job.
As Zadran could not come to an agreement with the lender, he complained to Financial Services Complaints Limited (FSCL).
What the lender and borrower said
Zadran said that the lender had not done enough to help him. He thought it was unfair for the lender to charge default interest and fees when he was experiencing hardship.
What the lending responsible?
Leighton accepted what we had to say.
Because Zadran did not miss any loan payments until he lost his job, it seemed very likely that the loan was affordable when he borrowed the money. Zadran agreed that the problems occurred after he lost his job.
We explained to Zadran that the loan agreement allowed the lender to charge default interest and fees.
What about the payment protection insurance?
Zadran could not understand why the PPI did not cover him when he lost his job.
We explained to Zadran that, although the insurance premium was part of the loan sum, the decision to decline the claim was made by the insurer. We suggested Zadran complain to the insurer or their dispute resolution service.
Did the lender do anything wrong?
We considered that the lender had not done anything ‘wrong’. The lender had given Zadran information about financial mentoring services and had restructured the loan once to avoid default interest and fees. Reviewing the lender’s diary notes, it appeared that Zadran was offering to increase his payment to get the loan back on track and avoid repossession of his car.
FSCL negotiates a compassionate solution
We explained to the lender that Zadran felt like he was being punished for not repaying the loan. Zadran wanted to repay it. The only thing stopping him was his employment difficulties. His desire to repay the debt was causing him to offer amounts he could not afford.
After our involvement, the lender agreed to a compassionate resolution:
- refund all default interest and fees charged on Zadran’s loan account
- refinance one $150 payment, which was causing the account to remain in arrears, back into the loan balance
- reduce payments to $110 a week.
Zadran accepted the lender’s offer, and the complaint was resolved.
