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Under-estimated food costs leads to interest and fee refund

In 2019 Sarah, a sole parent of three young children, borrowed $12,550 to buy a car and agreed to repay the loan at $120 a week.

Sarah was struggling financially so, in early 2021, she went to a financial mentor for help. The financial mentor assessed Sarah’s financial situation and was concerned that her weekly budget was about $100 in deficit. The financial mentor wondered how the lender could have assessed Sarah’s 2019 loan application as affordable and asked the lender for information about the loan application.

The lender replied that the lending was affordable because, according to their calculation Sarah’s weekly income and expenses, including the car loan and car related costs, were exactly the same amount. The lender noted that over the last two years Sarah had only missed one loan repayment (on this loan)that she had caught up in a short time. The lender said that if Sarah was struggling financially, they would have expected to see a poor payment history. From the lender’s perspective, Sarah was an excellent client and could afford to repay the loan without suffering substantial hardship

The financial mentor did not accept the lender’s calculation of Sarah’s expenses and complained to FSCL.



The financial mentor complained that the lender had not met their responsible lending obligations because they had under-estimated Sarah’s living costs. The financial mentor explained that Sarah had only managed to make her loan repayments by sacrificing other expenses.

Sarah explained that she prioritised the loan repayments because she was afraid the lender would repossess her car, meaning that she could not take her children to school and the doctor. In order to pay the loan, Sarah had borrowed money from family and friends to feed and clothe her children.

The lender was satisfied that they had a robust loan assessment process and would never lend money to someone who could not afford it.



We reviewed the affordability assessment presented by the lender and the financial mentor and saw that the biggest discrepancy in the budget was the amount allowed for food each week. The financial mentor had allowed $220 for food and the lender had allowed $170.

We asked both parties to explain the basis for their calculation. The financial mentor said that her calculation was based on the Statistics New Zealand Home Economics Survey and the Otago University School of Nutrition’s calculation.

The lender said that they do not accept that the Otago University School of Nutrition’s calculation is reliable because it does not consider the needs of different demographics and location. The lender explained that their calculation is based on the Statistics New Zealand Home Economics Survey, because this survey takes into consideration regional differences and different income bands.

The lender advised that the Home Economics Survey for an adult with three children, living in Sarah’s region, with the same income as Sarah would spend $260 a week on food. The lender then explained that they discounted the $260 by 65% to reflect the fact that Sarah earns 65% of the average income, and calculated Sarah’s food allowance as $170 a week.

While we agreed that those on higher incomes will spend more on food, it was our view that the Statistics New Zealand data had already taken this into consideration and that the lender had made a mistake when they applied the further 65% discount.

Using the undiscounted amount from the Statistics New Zealand data, Sarah could be expected to pay $260 a week on food, more than both her financial mentor and the lender calculated.

It was our view that the lender had made a mistake when calculating Sarah’s affordability and had breached their responsible lending obligations in section 9C(3)(a) of the Credit Contracts and Consumer Finance Act 2003 (CCCFA) by failing to satisfy themselves that Sarah could repay the loan without suffering substantial hardship. The remedy for this breach, as set out at section 89(1)(aaa) of the CCCFA, was for the lender to refund all the interest and charges added to the loan.



We recommended, and Sarah accepted, a refund of all the interest and fees charged on the loan which was about $6,500. Once the interest and fees were refunded, Sarah’s outstanding loan balance was completely repaid, and she received a refund of about $500.


Insights for participants

Where a lender is relying on a ‘benchmarked’ amount to assess living costs, rather than the actual costs, the amount must be based on reliable data and accurately calculated. If a lender makes a mistake in calculating either income or expenses, it may lead to a breach of the CCCFA. Where it is found that the lender failed to satisfy itself that the borrower can afford to repay the loan without suffering substantial hardship, the law requires a refund of all the interest and fees the lender has charged over the life of the loan.