Insights for lenders
- Verification is more than ID checks — it is about understanding who is actually involved and at risk, and personal contact with co-borrowers and guarantors.
- If a co-borrower doesn’t benefit from a loan, contact them directly, ensure they understand that they are signing up to the loan, and suggest they seek independent advice.
- Use technology smartly — check devices, use face ID, look out for suspicious emails.
Insights for consumers
- Do not sign anything without understanding it, especially if it involves your home or assets.
- Make sure you know what the loan is for and what you’re agreeing to.
- Get legal advice before becoming a co-borrower or offering security on a loan.
- Protect your personal information, especially when documents are signed online.
- If something feels wrong, speak up, contact the lender or a complaints service like FSCL.
What happened?
In 2023, Chris* applied for a $30,000 business loan. The lender reviewed his application and asked for security. Chris offered his minivan, worth around $18,000, that was fully paid off. The lender still wanted more security.
Chris owned a home with his wife, Karen*, and asked if he could add her as a co-borrower and use the house as extra security. The lender agreed.
Chris provided copies of both his and Karen’s driver licences, a joint bank statement, and contact details for both of them. The lender approved the loan.
A year later, Chris’s business failed, and he filed for bankruptcy. He offered to surrender the minivan to the lender and referred them to his official assignee for everything else.
Then the lender contacted Karen.
She was shocked. She said she had no idea about the loan, had never agreed to it, and had certainly never signed anything.
What were the parties’ views?
Karen said Chris had signed the documents without her knowledge. To resolve the complaint, Karen wanted:
- her name removed from the loan
- the security over their home released
- the minivan returned or compensation for its auction value
- compensation for stress and inconvenience.
The lender said they understood Karen’s situation and wanted to help. However, since Chris insisted Karen was aware of the loan, they needed evidence before making any changes.
They asked Karen to report the fraud to the police and provide a case number, but Karen refused. She said she and Chris shared three children and, although she was hurt by his actions, she did not want to file a police complaint against him.
With no resolution, Karen complained to FSCL.
What was FSCL’s view?
We focused our investigation on three key questions:
1. Should the lender have contacted Karen directly?
2. Should the house still be used as security?
3. Did Karen need to report the fraud to the police?
Karen’s greatest concern was that the lender never contacted her, and said her signature was not the same as the one on her driver’s licence.
The loan contract had been signed online, which explained the difference in signature, so we looked at the lender’s verification process. The lender met basic ID requirements, but we believed they missed a critical step – Karen was not involved in the business and did not benefit from the loan.
It was our view that a responsible lender should have contacted Karen directly, explained the risks, and recommended she seek independent or legal advice before adding her as a co-borrower and taking security over the family home.
Because this did not happen, and we were satisfied there was insufficient evidence to show that Karen had agreed to or signed the loan agreement, we recommended the lender remove her name as a co-borrower, and pay Karen $1,000 compensation for stress and inconvenience caused.
We also said that the lender should remove their security over Karen’s share of the home.
The lender again asked Karen to report the fraud to the police and Karen declined.
In our view, it was reasonable for the lender to want formal confirmation that Karen had not agreed to the loan. However, we also understood her reluctance to report her husband to the police.
To work around this, we suggested Karen sign a statutory declaration, detailing her side of the story without naming Chris — since she could not absolutely confirm what he did. We believed a statutory declaration was a fair middle ground.
We highlighted that the goal was not to accuse Chris, but to document Karen’s lack of knowledge of the loan.
The lender agreed to this solution.
Summary
We recommended that the lender:
- help Karen prepare a statutory declaration (at no cost)
- remove her name from the loan
- clear her credit record
- release her share of the house from the loan security
- pay her $1,000 for stress and inconvenience.
How was the complaint resolved?
Because she did not want to sign a statutory declaration, Karen did not accept the resolution, and we closed our file.
