Maeve applied for a personal loan in October 2020. She provided bank statements dating back to July 2020. The lender approved the loan of approximately $5,000 with an interest rate of 49.95% per annum.
By January 2021, Maeve had begun to default on the repayments. She incurred several default fees over the next six months.
In June 2021, Maeve complained to the lender that the loan was unaffordable. The lender offered for Maeve to pay $3,600 to settle the remaining loan account, instead of the full balance of $4,750.
Maeve declined the lender’s offer and complained to FSCL.
Maeve said that the loan was unaffordable and therefore the lender should have declined her application. The lender’s assessment of her expenses did not include loan repayments to her mother, vehicle insurance, or credit card repayments. Maeve said she could not meet her repayment obligations to the lender while also meeting her necessities and other financial commitments.
The lender said that they had made reasonable enquiries into Maeve’s income, expenses, and the likelihood of loan repayments. Further, Maeve’s credit enquiries showed no red flags.
Lenders must meet the lending responsibilities under section 9C(3) of the Credit Contracts and Consumer Finance Act 2003 (CCCFA). The lender must make reasonable enquiries before entering into a loan agreement to be satisfied that the borrower will make the agreed payments without suffering substantial hardship. Under the Responsible Lending Code, the lender must be satisfied that the borrower will be able to meet necessities and other financial commitments while making the agreed loan repayments.
Accepting the lender’s own assessment of Maeve’s income and expenses, the loan appears to be affordable. If Maeve’s additional expenses of vehicle insurance, credit card repayments, and loan repayments to her mother had been included, then the loan was likely unaffordable.
It was our view that the car insurance and credit card repayments were regular obligatory payments and should have been included. Although Maeve’s bank statements showed that the repayments to her mother were irregular, the lender was responsible for querying the payments. If the lender had asked Maeve about the payments to her mother, they would have found that her loan repayment should have been included in their expense assessment.
When the additional expenses were included in the assessment, Maeve’s expenses were clearly more than her income. The loan was unaffordable, as further evidenced by Maeve defaulting on payments within three months of the loan advance.
The lender failed to meet their lender responsibility obligations under section 9C(3) of the CCCFA by offering Maeve an unaffordable loan. We applied the CCCFA remedy requiring the lender to refund all interest and fees already charged to the loan account and not to charge any interest or fees in the future.
We encouraged the lender to agree to an affordable repayment plan with Maeve for the remaining loan principal balance.
Further, we recommended that the lender pay Maeve $350 as compensation for the particular stress and inconvenience in her case. Because the loan was unaffordable, Maeve was in a position of financial hardship and had to forgo necessities to try to meet her repayment obligations. Maeve explained that it was stressful not having enough food some weeks, and embarrassing having to borrow money from relatives.
Both parties accepted this decision.
Insight for participants
Lenders must ensure that they make all reasonable efforts to enquire about a borrower’s expenses. In order to meet their obligations as responsible lenders, any loan repayments and regular expenses should be included in the affordability assessment to demonstrate that the borrower can repay the loan and meet their necessities and existing financial obligations.