Sylvia manages a number of properties owned as companies, in trust, in partnership or in her personal capacity. She takes her responsibilities to the entities seriously and is constantly thinking of ways to maximise income and reduce costs.
Will this debt repayment programme work for me?
Sylvia noticed an advertisement promising a programme to reduce home loan terms and interest. Aware of the complex interrelated nature of her properties Sylvia made an appointment to meet Edward, the advertised company’s owner, to discuss the suitability of the debt repayment programme. Sylvia said Edward was not very interested in her personal circumstances, directed her to the company’s website, and indicated that the programme would work for her.
Sylvia struggled to complete the online application form because her ownership structure did not easily fit the template. Sylvia submitted the information as best she could, emailing Edward to explain her difficulties. Edward then took Sylvia through a Skype training programme and, at the end of the programme, Sylvia paid the $5,000 application fee. Edward sent Sylvia the debt repayment programme for her to implement.
The debt repayment programme
Essentially the programme was a revolving credit facility, with the borrower focussing repayments on one loan at a time. The programme also included other debt repayment suggestions like repaying your credit card in full on the due date, paying bills by automatic payment or direct debit on the 20th of the month, and leaving money in the revolving credit facility for as long as possible.
Trustees and Sylvia not convinced programme is suitable
Sylvia showed the programme to the other trustees who said they could not agree to trust property being included in the programme. When Sylvia looked more closely at the way the programme worked she became convinced it was unsuitable for the mixed ownership structure of her properties. Sylvia was also concerned about the programme’s tax implications. Sylvia explained the difficulties to Edward, but he insisted the programme would work. Sylvia was not convinced and asked Edward to refund the $5,000 fee.
Edward agreed to return the $5,000 but asked Sylvia to sign a settlement statement that included an undertaking from Sylvia that neither she nor the other trustees would use the company’s intellectual property. Edward was concerned Sylvia now knew how to repay her debt faster, but was not prepared to pay for this knowledge.
Sylvia’s view
Sylvia agreed to give an undertaking that she would not use the programme, but she was uncertain what Edward considered to be his company’s intellectual property. Sylvia pointed out that repaying a credit card on the day due was a well-known practice, and not Edward’s intellectual property. Sylvia also said she was unable to control the other trustees’ actions, and was not able to sign the undertaking that Edward required.
Sylvia said that she did not have enough information about the programme to understand it would not work for her until after she had paid the $5,000. Sylvia had asked Edward for advice and, if he had listened to her queries, he would have realised the potential difficulties and could have advised her accordingly.
Sylvia declined to sign the undertaking and Edward said he would not return her $5,000 fee.
Sylvia complained to FSCL.
Review
We found that as soon as Edward became aware of the complex nature of Sylvia’s assets and liabilities, he should have known the application was not going to be straightforward. Instead of alerting Sylvia to possible difficulties, Edward encouraged her to proceed, accepting her money. It was only after Sylvia paid the $5,000 that she was given enough information to take to the trustees and also to assess for herself the suitability of the programme.
We noted that the very nature of the programme’s revolving credit facility requires some debt to be prioritised over other debt. Where a trust is concerned, the trustees must make sure beneficiaries are not disadvantaged. We considered it highly unlikely an independent trustee would be prepared to agree to the programme and its debt repayment methods.
It seemed to us the best outcome for all concerned was to return both parties to the position they were in before the relationship began. We proposed Edward return the $5,000 fee to Sylvia, and Sylvia agree not to use the programme.
Outcome
Sylvia accepted our proposal immediately. Edward initially disagreed with our view but later deposited the $5,000 into Sylvia’s bank account without any explanation. Sylvia was delighted with the outcome and withdrew her complaint.
Our insight
This case highlights the importance of listening to the customer throughout the relationship – both during the initial phases when a potential customer is considering the suitability of a service, but also after a complaint is made. The outcome we proposed was essentially the settlement offered by Edward, but Edward’s reluctance to listen to Sylvia’s concerns about the form of the undertaking he wanted her to sign resulted in Sylvia referring the complaint to us.
