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Where are the affordability assessment documents?

Fang borrowed $25,000 in September 2015 over a 60-month loan term and monthly repayments of $800.

In November 2016 Fang borrowed a further $20,000, which was added to the existing loan balance. The total loan was to be repaid at $1,200 a month over 60 months.

In June 2021, Fang complained to FSCL about the lender’s decision to deny her unforeseen hardship relief following her partner becoming medically unfit to work. During our investigation, the lender put forward an option to freeze Fang’s loan balance. Fang did not agree to this option as she considered it would have a negative effect on her credit rating. Instead, Fang agreed to the lender’s offer to grant her hardship relief and we closed our complaint file.

In August 2022, Fang contacted FSCL complaining about the same lender, saying that the lender had incorrectly apportioned her loan repayments between the interest and the principal. Fang also questioned whether the increases to her loan balance due to the period of hardship relief were correct. After receiving Fang’s file from the lender, we were concerned that the loans may have been unaffordable. Our investigation then focused on the affordability of the loans.

Dispute

Fang said that both loans were unaffordable. She said it was very easy for her to obtain both loans, and she was concerned about whether the lender had loaned to her responsibly.

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). They said they assessed affordability by enquiring into Fang’s income and expenses to ensure she could repay the primary loan and the top-up without suffering substantial hardship. The lender said that the third-party debts that Fang noted in her budget provided to FSCL did not match her credit file for their affordability assessment documents.

Review

The lender did not give us the loan affordability assessment documents. The file information provided by the lender included a bank statement which did not show all expected expenses such as home loan payments or utilities. It appeared that Fang likely had another bank account at this time, but she no longer had the relevant bank statements, and so we relied on the information Fang provided about her financial position at the time the loans were granted.

Based on Fang’s information, there was a monthly deficit in her budget of at least $4,000 in relation to both the 2015 and 2016 loans. Fang shared some expenses with her husband, which we factored into our calculations. Although the loans were solely in Fang’s name, we enquired into her husband’s income to see whether it was high enough to cover the deficit in Fang’s budget, but he was not earning enough to cover his share of their joint expenses, let alone Fang’s deficit.

We suggested to the lender that the loans were unaffordable. We informally asked the lender to consider applying the remedies outlined in section 89(1)(aaa) of the Act, meaning that they would write all interest and fees off the loan. The lender replied saying that our amounts did not match their original affordability assessment for both loans and sent us through the loan affordability assessments.

We were not persuaded that the lender’s affordability assessment could be relied on in either 2015 or 2016.

The 2015 affordability assessment did not show that Fang’s mortgage repayments or actual living expenses, such as utilities, had been taken into account. The document stated Fang’s monthly income as $3,000, but it was unclear where the lender had obtained this figure from. Further, the lender said that her income exceeded her expenses by “$” (presumably $0) after applying a 10% buffer, which did not make sense. Finally, the documents referred to regulation 4AL(2)(b)(ii) of the Act, which did not become law until December 2021.

The 2016 affordability assessment document had concerning characteristics similar to the 2015 equivalent, including reference to the same 2021 regulation. It referred to a “requested loan amount” of $1,400, despite the top-up being for $20,000. The document said the total loan amount was $40,000, which was also incorrect (the total balance was $50,000). Finally, the document said Fang’s income was $0, so it is unclear how she could make repayments.

Fang appeared to have a significant amount of third-party debt, which unusually did not appear on her credit file. Fang’s debt, excluding her home loan payment, amounted to monthly repayments of $3,300. Even if we did not consider the third-party debt (as suggested by the lender) Fang had a $700 monthly budget deficit.

Given the number of mistakes in the lender’s calculation, we were not persuaded to prefer the lender’s assessment of Fang’s financial position in 2015 and 2016. We found that the lender had breached their responsibilities under the Act.

Resolution

We were satisfied that it was appropriate to apply the remedy under the Act, being a refund of all the interest and fees charged since 2015. After the lender credited the interest and fees to Fang’s account, she was left with a $300 surplus, which the lender paid to Fang. The lender was required to update Fang’s credit file to show her debt was paid in full.

Both parties accepted this resolution, and we closed our file.

Insights for participants

Lenders must accurately enquire into a borrower’s income and expenses to ensure that a loan is affordable for the applicant and does not put them in substantial hardship. Lenders should take care to ensure that all necessary documents in a borrower’s file are produced and retained, particularly the affordability assessment. Lenders should also make sure they have enquired into and taken into account any other debts the borrower has.