In 2010, Tricia was at home when a mobile trader (truck shop) salesman knocked on her door. Tricia needed a new TV, so she opened an account and began paying off her new TV with weekly loan payments. Over the following 18 months, Tricia bought further goods worth $3600 from the mobile trader.
As a result of these purchases, Tricia missed some payments and the mobile trader charged Tricia $550 in fees, made up of $220 in account management fees and $330 in late payment fees. Tricia soon began to find it difficult to make her weekly payments and the mobile trader agreed to reduce her payments for 3 months.
Dispute
When Tricia got into financial difficulties, she got help from a financial mentor. The financial mentor looked into Tricia’s debts and believed that the mobile trader had lent to Tricia irresponsibly.
The financial mentor thought the mobile trader had breached section 9C(3)(a) of the Credit Contracts and Consumer Finance Act (the Act) which states that a lender must make reasonable inquiries to satisfy themselves that the agreement both meets the borrower’s requirements and that the borrower can make payments without suffering substantial hardship.
The financial mentor calculated that the payment arrangement offered by the mobile trader did not allow Tricia to get out of hardship and only increased the long-term cost of the loan.
As Tricia was falling deeper into debt, the financial mentor complained on Tricia’s behalf to FSCL.
Review
The responsible lending principles set out in the Act came into force on 6 June 2015.
As Tricia entered into her credit agreement in 2010, the responsible lending obligations that came into force in June 2015 did not apply.
Had Tricia requested an increase in her credit limit or weekly payment value, a full financial reassessment would have taken place in line with the mobile trader’s lending policies and in line with the Act and the responsible lending obligations would then have applied.
Resolution
To resolve the complaint, the mobile trader offered to freeze Tricia’s account and to not charge interest or any further fees while the outstanding account balance was being paid off. This saved Tricia more than $3,000 in interest and more than $300 in account fees.
The mobile trader also agreed to Tricia paying $20 a week towards the debt.
Insights for consumers
Even though Tricia took out credit before the changes to the Act came into effect, it is still in the lender’s best interest to ensure that Tricia can afford the loan and make the weekly payments.
While many lenders work hard to meet their legal obligations, there are still some lenders who do not meet their responsible lending obligations. If you think something looks wrong, you should seek help from a financial mentor or contact FSCL. We will tell you if we think your lender has acted correctly, but if we can see evidence that the lender has breached their legal obligations, we can require the lender to pay compensation.
As FSCL is not a regulator, we cannot investigate or make decisions about the ethics or manner of mobile trading or the structure of high interest lending.
